student loan debtMost people, both lawyers and non-lawyers, believe that filing bankruptcy does not result in a discharge of a student loan.   That, for the most part, is true under the 2005 Bankruptcy Act amendments.  The code, as amended, does not provide for the discharge of a student loan in a bankruptcy.  UNLESS…the debtor brings a lawsuit and asks the bankruptcy judge to make a determination that the continued existence of the student loan will create an “undue hardship” on the debtor.    That “undue hardship” is the hard part — convincing a judge that in this particular case with this particular set of facts that this particular debtor will not be able to make any kind of meaningful payment on the balance of the student loans.   Each federal judicial circuit uses its own method of determination of “what exactly is an undue hardship?” The Department of Education recently issued a guidance letter on whether a student loan dischargeability lawsuit will be litigated or whether the Department of Education will recommend agreeing to the discharge.   Private student loan lenders have no such policy and it will be up to the individual creditor/lender to determine if their attorney will defend such a lawsuit vigorously or agree to settlement before a trial or go to trial to let the judge decide the issue.

This kind of lawsuit is not for the everyday person to attempt on their own as disastrous results can occur.  This kind of lawsuit is not for the everyday attorney to file as the bankruptcy court has its own unique set of rules and its own way of doing business and conducting litigation proceedings.   An experienced student loan litigation attorney is part of the toolbox that a debtor must have in order to successfully discharge a student loan with any certainty.   Sometimes, litigation is not the answer.  Litigation is expensive.   Some attorneys require a large retainer; others will take payment plans.    Sometimes, a better result is obtained through  negotiation.   Negotiation with a bankruptcy attorney or student loan attorney as your shield is also a way to reduce the balance of the student loan debt.    Negotiation is also going to cost the debtor money.   Debtors will need to choose where their funds are best placed — payment on a student loan balance that will survive until age 150 or payment to an attorney who can bring some relief to a financially stressed budget.

A list of qualified student loan attorneys can be found here; these attorneys attended workshops brought by Joshua Cohen, an attorney who made the decision to read every federal regulation on student loans and the issues regarding payments, bankruptcy and settling with the lenders.     A list of experienced consumer protection attorneys who also handle student loan issues can be found by searching here at the  National Association of Consumer Advocates.  Bankruptcy attorneys who may deal with student loan issues in bankruptcy can be found here through the National Association of Consumer Bankruptcy Attorneys.

Can the battle be won?  Yes!    Pick the battle carefully.   Choose your weapons carefully (a good attorney and a good set of facts).

Harvey Miller may be the best bankruptcy practitioner of the last 50 years.  He died this week and the world is a lesser place without him.

Miller was the all-star bankruptcy attorney in many of the most important bankruptcies and workouts during our lifetimes.  And although I do not work in corporate bankruptcy, he had a critical impact on my career path for which I will be eternally grateful.

Miller’s case list reads like a Bankruptcy Down Jones Index:  Continental and American Airlines, Texaco, Macy’s, Drexel Burnham, General Motors, and — the largest case in history — Lehman Brothers.  And he was at the heart of negotiating New York’s way off the ledge of bankruptcy.

He was a long-time member of the Weil Gotshal firm.  He did take five years between 2002-2007 to work on Wall Street — a critic of the casino going to deal blackjack? — but he came back to Weil just in time for a finale worthy of Wagner, with General Motors and Lehman Brothers.

There are thorough obituaries of Miller out there now, particularly from his own partners and the New York Times.  But I want to add my own personal thoughts on this loss to the bankruptcy community.

In 1985, due to a failed deal with Pennzoil, Texaco got slapped hard by a Texas jury for $12 billion.  Over the next two-years, Texaco wriggled and twisted across the court system trying to avoid posting a $12 billion bond — required by Texas law — in order to appeal the decision.  Failing all such avenues, Texaco turned to Harvey Miller. He took them into Chapter 11, reorganized the firm and saved it from its own hubris.

Half-a-continent away, I was enrolling in law school and watching the Texaco case play out almost daily.  Miller’s strategic use of bankruptcy to salvage — and reinvigorate —  an otherwise financially-viable business rather than liquidating it was a revelation.  Here was the proverbial “new way to skin a cat” and I was hooked.  I’m sure the urbane (and no doubt sartorially resplendent) Miller could not expect to inspire a 23-year old in flyover country to devote his career to bankruptcy but, in his way, he did.

Thank you, Harvey.

Moving, Bankruptcy AND Planning A Smooth Exit.

by Rachel Lynn Foley, Esq.

What happens when you surrender a home in bankruptcy?  Must you move the second a bankruptcy is filed?  Do they give you time to move or will your possessions be thrown out on the front lawn for the neighbors to view?

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Most of the posts on this blog, and in fact on most bankruptcy blogs, focus on the consumer as the bankruptcy debtor.  That makes sense–most bankruptcy cases involve a consumer debtor and a number of institutional creditors, like banks and credit card companies.  And those banks and credit card companies have in-house lawyers, and white-shoe law […]

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by Craig Andresen, Minneapolis, MN, Bankruptcy Attorney

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