Student Loans: What are the various repayment programs and...

SStudent Loan Options andChapter 13 BankruptcyChapter 13 Bankruptcy

Edward BoltzThe Law Offices of John T. Orcutt

1738-D Hillandale Road, Durham NC 27705919.286.1696

[email protected]© Edward Boltz 2015

• $1.18 Trillion outstanding in Q1 2015– Auto loans: $968 billion

EEducational Debt Levels in 2015

Auto loans: $968 billion– Credit cards: $685 billion

• 43 million Americans owe educational debt

• 2013 undergraduate: $27,300– 70% of 2013 graduates have student loan debt.

AAverage Debt Loads

• 40% of student loans are borrowed forgraduate or professional school.–2013 law school: $141,000–2013 medical school: $162,000

AAverage Debt at NC Law Schools: 2014 class

Charlotte $140,528Elon $132,444Duke $125,406Wake Forest $107,532UNC-CH $92,475Campbell $90,065NCCU $58,061

• Delinquent = borrower has missed 1 payment• Default = status after 9 months of delinquency

DDefault and Delinquency Rates

• Q1 2015: 11.1% 90+ days delinquent or in default– 11.3% in Q3 2014– 11.5% in Q4 2013

• 8.8% had defaulted by the end of 2010.

• Only 17% of the original debt had been paid

CClass of 2009

Only 17% of the original debt had been paiddown after five years.

• More than 20% of high balance borrowers owemore than when they graduated.

WWhat is a Student Loan?In the bankruptcy context, absent an “undue hardship”, 11U.S.C. § 523(a)(8)(A) makes non-dischargeable “an educationalbenefit overpayment or loan made, insured or guaranteed bya governmental unit, or made under any program funded inwhole or in part by a governmental unit or nonprofitinstitution or an obligation to repay funds received as aninstitution, or … an obligation to repay funds received as aneducational benefit, scholarship or stipend…

This describes the government guaranteed student loans.

WWhat is a Student Loan?Following BAPCPA, under 11 U.S.C. § 523(a)(8)(B) “any othereducational loan that is a qualified education loan, as definedin section 221(d)(1) of the Internal Revenue Code of 1986,incurred by a debtor who is an individual.

This describes the private student loans, but those must meet the requirements of the Internalp , qRevenue Code at 26 U.S.C. § 221(d).

WWhen is a Private Student Loan Non-Dischargeable?(d) Definitions For purposes of this section—

(1) Qualified education loan The term “qualified education loan” means any indebtedness incurred by the taxpayer solely to payqualified higher education expenses—

(A)which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time theindebtedness was incurred,

(B)which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and

(C)which are attributable to education furnished during a period during which the recipient was an eligible student.

Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term “qualifiedd i l ” h ll i l d i d b d d h i l d ( i hi h i f i 267(b)education loan” shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) orunder any contract referred to in section 72(p)(5).

(2) Qualified higher education expenses The term “qualified higher education expenses” means the cost of attendance (as defined insection 472 of the Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before the date of the enactment of theTaxpayer Relief Act of 1997) at an eligible educational institution, reduced by the sum of—

(A)the amount excluded from gross income under section 127, 135, 529, or 530 by reason of such expenses, and

(B)the amount of any scholarship, allowance, or payment described in section 25A(g)(2).

For purposes of the preceding sentence, the term “eligible educational institution” has the same meaning given such term by section25A(f)(2), except that such term shall also include an institution conducting an internship or residency program leading to a degree orcertificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training.

WWhen is a Private Student Loan Dischargeable?Hours could be spent parsing these section of the Bankruptcy and Internal Revenue Codes, but justfew examples:

While 11 U.S.C.S. § 523(a)(8)(A)(ii) provides that a bankruptcy discharge will discharge claimsreceived as an educational benefit, scholarship, or stipend, to be excepted from discharge underthis subsection, a creditor must demonstrate that the debtor is obliged to repay a debt for

for the educational benefits. 11 U.S.C.S. § 523(a)(8)(A)(ii) is not a catch-all provisiondesigned to include every type of credit transaction that bestows an educational benefit on ad bt I t d thi b ti i l d diti di ti t f th i th th b ti fdebtor. Instead, this subsection includes a condition, distinct from those in the other subsections of§ 523(a)(8), that that funds be received by the debtor. Inst. of Imaginal Studies v. Christoff (In reChristoff), 527 B.R. 624 (9th Cir. BAP February 19, 2015).

Or consider that 26 U.S.C. § 221(d) defines the term “qualified education loan” as “anyindebtedness incurred by the taxpayer solely to pay qualified higher education expenses …whichare incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer asof the time the indebtedness was incurred….” (Emphasis added.) If the loan was incurred forreasons beyond only higher education or were incurred for a child that was no longer a dependent,such would not be a “qualified education loan”, private or otherwise.

TTypes of Federal Loans• William D. Ford Federal Direct Loan Program (“Direct Loan”)34 C.F.R. §685Only option as of July 2010.• PLUS Loan34 C.F.R. §685Credit Based Loans for Parent or Graduate Student.• Perkins Loan34 C.F.R. §674Administered by the school for exceptional financial need.

TTypes of Federal Loans(Discontinued)

• Federal Family Education Loan Program (“FFEL”)34 C.F.R. §682Discontinued as of July 2010.• Health Education Assistance Loan Program (“HEAL”)42 C.F.R. §60Discontinued in 1998.

OObtaining Information About Federal Loans

Information about federal student can best be obtained from theNational Student Loan Data System, which is the central database forstudent aid. It receives data from schools, agencies that guaranteeloans, the Direct Loan Program, the Federal Pell Grant Program, andother United States Department of Education programs.It is available online at:https://www.nslds.ed.gov


The Department of Education has repeatedly stated that only theborrower is allowed to access this information.

Attorneys for borrowers are not exempted from this restriction makingAttorneys for borrowers are not exempted from this restriction, makingit necessary for the borrower to either print out the information orsave it as a pdf screenshot.


Alternatively, borrowers can download NSLDS data into a readable file:• Log in at StudentAid.gov.• Click or touch “MyStudentData Download.”• Click or touch “Confirm.”• Specify a file location for saving and downloading (i.e., designate towhat location on your computer you want to save the file). If you areusing a mobile device, your data may open in a new window or it maydownload, depending on your device.

• The file will download to the specified location.

SSample Information• File Source:U.S. DEPARTMENT OF EDUCATION, NATIONAL STUDENT LOAN DATA SYSTEM(NSLDS)

• File Request Date:2014-07-01-10.51.27.075• Student First Name:YPSILANTI• Student Middle Initial:A• Student Last Name:CURRUTHERS• Student Street Address 1:123 WINDING WAY• Student Street Address 1:123 WINDING WAY• Student Street Address 2:APT. 1014• Student City:BEDFORD FALLS• Student State Code:NY• Student Country Code:US• Student Zip Code:55501• Student Email Address:[email protected]• Student Home Phone Country Code:001• Student Home Phone Number:7035551212

SSample Information• Student Home Phone Preferred:No• Student Cell Phone Country Code:001• Student Cell Phone Number:7035551313• Student Cell Phone Preferred:Yes• Student Work Phone Country Code:001• Student Work Phone Number:7035551414• Student Work Phone Preferred:NoStudent Work Phone Preferred:No• Student SULA MEP Program School Name:NORTH SOUTH UNIVERSITY• Student SULA MEP Program Enrollment Status:FULL TIME• Student SULA MEP Program CIP Title:Urban Forestry.• Student SULA MEP Program Credential Level:BACHELOR’S DEGREE• Student SULA MEP Program Begin Date:08/15/2013• Student SULA MEP Program Length In Years:4.0• Student SULA Maximum Eligibility Period:6.0

SSample Information• Student SULA Subsidized Usage Period:1.0• Student SULA Remaining Eligibility Period:5.0• Student Enrollment Status:FULL TIME• Student Enrollment Status Effective Date:08/15/2013• Student Total All Loans Outstanding Principal:$30,476• Student Total All Loans Outstanding Interest:$99• Student Pell Lifetime Eligibility Used:4 511%• Student Pell Lifetime Eligibility Used:4.511%• Student Total All Grants:$553• Total DIRECT STAFFORD SUBSIDIZED (SULA ELIGIBLE) OutstandingPrincipal:$12,000

• Total DIRECT STAFFORD SUBSIDIZED (SULA ELIGIBLE) Outstanding Interest:$200• Loan Type:DIRECT STAFFORD SUBSIDIZED (SULA ELIGIBLE)• Loan Award ID:*****6789012345678901• Loan Attending School Name:NORTH SOUTH UNIVERSITY• Loan Attending School OPEID:00301000

SSample Information• Loan Date:08/15/2013• Loan Repayment Begin Date:12/01/2018• Loan Period Begin Date:08/15/2013• Loan Period End Date:05/20/2014• Loan Amount:$8,500• Loan Disbursed Amount:$8,500• Loan Canceled Amount:$0• Loan Canceled Date:• Loan Outstanding Principal Balance:$8,500• Loan Outstanding Principal Balance as of Date:07/01/2014• Loan Outstanding Interest Balance:$100• Loan Outstanding Interest Balance as of Date: 07/01/2014• Loan Interest Rate Type:VARIABLE

SSample Information• Loan Repayment Plan Begin Date: 12/01/2018• Loan Repayment Plan Scheduled Amount:$8,500• Loan Confirmed Subsidy Status:Subsidized• Loan Subsidized Usage In Years:1.0• Loan Status:ID• Loan Status Description:IN SCHOOL OR GRACE PERIOD• Loan Status Effective Date:08/20/2013• Loan Disbursement Date:08/15/2013• Loan Disbursement Amount:$7,000• Loan Contact Type:Current ED Servicer• Loan Contact Name:DEPT OF ED/SERVICER• Loan Contact Street Address 1:633 SPIRIT DRIVE• Loan Contact City:CHESTERFIELD• Loan Contact State Code:MO• Loan Contact Zip Code:63005

OObtaining Information About Private Loans

Information about private student loanscan be obtained from credit reports orthrough a FDCPA verification letterthrough a FDCPA verification letter.

DDifferences Between Federal & Private Student Loans

Statute of LimitationsFederal Private

There is no Statute of Limitations Private Student Loans are subjectfor Federal Student Loans.

jto a Statute of Limitations.This may be determined by thecontract or by state law.


Debt CollectionFederal Private

The federal government and its debt Private Student lenders can collectgcollectors can collect through:• Intercept Tax Refunds• Administrative Wage Garnishment• Lawsuit and Judgment Collection

through:• Lawsuit and Judgment Collection


Debt CollectionFederal Private

The federal government has a Private Student lenders can hireglimited list of debt collectionagencies that can be found at:

https://studentaid.ed.gov/sa/about/data-center/business-info/contracts/collection-agency

any collection agency.


Repayment OptionsFederal Private

The federal government has Private Student lenders have notgpanoply of repayment options,including standard, extended andassorted income drive plans.

mandatory repayment optionsother than the contract or anegotiated settlement.


ForbearanceFederal Private

Federal loans may be placed in Private Student lenders generallyy pforbearance for a variety ofreasons, including economichardship, unemployment, militaryservice, etc.

g ydo not have explicit forbearanceprograms, but can agree to such.


Bankruptcy DischargeFederal Private

Both federal and private student loans are subject to discharge ifp j grepayment would constitute an “undue hardship”, generally under theBruner test. (Which is beyond the scope of this talk.)


Bankruptcy DischargeFederal Private

It is worth noting that while 11 U.S.C. § 523(a)(8) did not define “undueg § ( )( )hardship”, a definition was provided by BAPCPA in 11 U.S.C. § 524(m):It shall be presumed that such agreement is an undue hardship on thedebtor if the debtor’s monthly income less the debtor’s monthlyexpenses as shown on the debtor’s completed and signed statement insupport of such agreement required under subsection (k)(6)(A) is lessthan the scheduled payments on the reaffirmed debt. Thispresumption shall be reviewed by the court.


Bankruptcy DischargeConsequences

Federal PrivateFederal PrivateStudent loans discharged in bankruptcy are not included taxableincome. See IRS Form 982.


CancellationDeath

Federal PrivateFederal PrivateThe obligation to repay federalloans ends with the borrower’sdeath or, for Parent Plus loans, thedeath of the student.

Private loans are also dischargedby the death of the borrower, butnot necessarily for the co-borrower.

Federal loans cannot collect fromthe decedent’s estate.

Private student loans can collectfrom the decedent’s estate.


CancellationDisability

Federal PrivateFederal PrivateA determination by the SocialSecurity or Veteran’sAdministrations that the borrower is“totally and permanently disabled”can result in an administrativedischarge, if the condition persistfor at least 3 years.

Private loans have no requirementof forgiveness due to disability.

OMBNo. 1845---0065Form ApprovedExp. Date 6/30/2016

DISCHARGE APPLICATION: TOTAL AND PERMANENT DISABILITYIMPORTANTINFORMATION

• William D. Ford Federal Direct Loan ProgramTPD APP • Federal Family Education Loan Program

• Federal Perkins Loan Program• TEACHGrant Program

READ THIS FIRST• This is an application for a total and permanent disability discharge of your William D. Ford Federal Direct Loan (Direct Loan) Program, Federal

Family Education Loan (FFEL) Program, and/or Federal Perkins Loan (Perkins Loan) Program loan(s), and/or your Teacher Education Assistance forCollege and Higher Education (TEACH) Grant Program service obligation.

• You only need to submit a single application to the U.S. Department of Education to apply for discharge of all of your Direct Loan, FFEL, and/orP ki L l d TEACH G t i bli ti Th h t thi li ti th d “ ” “ ” “ ” f t thPerkins Loan program loans and your TEACH Grant service obligations. Throughout this application, thewords “we,” “us,” an “our” refer to theU.S.Department of Education.

• To qualify for this discharge, youmustmeet one of the following requirements:1. You are a veteranwhohas been determined by theU.S. Department of VeteransAffairs (VA) to beunemployable due to a service

connected disability, and you provide documentation from the VA of that determination;OR

2. You have received a Social Security Administration (SSA) notice of award for Social Security Disability Insurance (SSDI) or SupplementalSecurity Income (SSI) stating that your next scheduled disability reviewwill be 5 to 7 years or more from the date of your last SSAdisability determination, and you provide a copy of that SSA notice of award.

OR3. You provide a certification from a physician in Section 4 of this Discharge Application that you are unable to engage in any substantial gainful

activity (see definition in Section 5) by reason of a medically determinable physical or mental impairment that:o Can be expected to result in death;o Has lasted for a continuous period of not less than 60months; oro Can be expected to last for a continuous period of not less than 60months.

• If you do not meet requirement #1 or requirement #2, youmay qualify for discharge by obtaining a certification from a physician in Section 4 ofthis application, as described above for requirement #3. If you can provide the documentation to show that youmeet requirement #1 or #2above, you are not required to have a physician complete Section 4.If l i f di h d i #1 id d i f h V h i h h VA h


CancellationClosed School

Federal PrivateFederal PrivateIf the school the borrower attendedclosed while the borrower enrolledor within 120 days of withdrawal,the loansmay be cancelled.

Private loans have no obligation tobe cancelled if the school closes.


CancellationFalse Certification

Federal PrivateFederal PrivateFederal loans may be cancelledunder some circumstances for falsecertification by the school of theborrower’s ability to benefit fromtraining or other identity theft.

Private loans are subject toidentity theft protections, but donot have to cancel loans fortraining that could not provide anybenefit.


CancellationConsequences

Federal PrivateFederal PrivateCancellation of both federal and private student loans will result in a thecancelled amount of the loan being reported as income for tax purposes.

DDifferences Between Federal & Private StudentLoans

ForgivenessPublic Service Loan ForgivenessFederal PrivateFederal Private

An borrower employed by thegovernment or a 501(c)(3) can haveDirect Loans forgiven after making120 payments, including under anIDR.

None.


ForgivenessTeacher Loan Forgiveness

Federal PrivateFederal PrivateA full-time teacher at a low-incomeschool can have $17,500 of Direct orFFEL loans forgiven.

None.


ForgivenessConsequences

Federal PrivateFederal PrivateForgiven loans are not reported astaxable income.

Not applicable.

DDefaulted Federal LoansDefault

Definition

No Payments for more than 270 days.

Consequences

• The entire unpaid balance is due and payable.• Loss of eligibility for deferment, forbearance, and repayment plans.• Loss of eligibility for additional federal student aid.• Loan is assigned to a collection agency.• The loan will be reported in default to credit bureaus• Intercept of tax refunds.• Balance will increase because of the late fees, additional interest, court costs, collection

fees, attorney’s fees, and any other costs associated with the collection process.• Administrative wage garnishment.• Commencement of legal action.• Possible Suspension of Professional or Driver’s Licenses.

SSolutions for Defaulted of Federal Loans

SettlementThe Department of Education, its Guaranty Agencies and Debt Collectors may accept a lumpsum settlement but are not required to accept such a settlement.Settlement of student loans will result in the cancelled amount being reported as taxableincome.

SSolutions for Defaulted of Federal Loans

SettlementFFEL and Perkins Loans

Collection costs can be waived.30% of principal and interest can be waived.If a guaranty agency chooses to compromise more than 30%, it cannot waive theDepartment’s right to collect the rest.

SSolutions for Defaulted of Federal LoansSettlement

Direct Loans

• Waiver of Collection Costs: Payment of the current principal and interest (waiver of collectioncosts/fees).

Example: Borrower owes $2500.00 Principal, $ 1000.00 Interest, and $875.00 projected collectionfees. The collector may offer the borrower a settlement as low as $3500.00 (Principal and Interest) tofully satisfy the accountfully satisfy the account.• Principal and Half Interest: Payment of at least the current principal and 50% of interest.

Example: Borrower owes $2000.00 Principal, $1000.00 Interest and $730.20 projected collectioncosts. The collector may offer the borrower a settlement as low as $2,500.00 (principal + 50%interest) to fully satisfy the account.• 90% principal and interest: Payment of at least 90% of the current principal and interest balance.

Example: Borrower owes $2000.00 Principal, $400.00 Interest and $584.16 projected collectioncosts. The collector may offer the borrower a settlement as low as $2160.00 (90% of principal +interest) to fully satisfy the account.

SSolutions for Defaulted of Federal LoansSettlement

The examples were taken directly from the 2009 Department of Education Private CollectionAgency (“PCA”) Manual and in all three, appear to authorize waiver of collection costs.In addition to these standard compromises, the PCA Manual authorizes discretionarycompromises for financial hardship with the prior approval of the Department of Education.

SSolutions for Defaulted of Federal LoansConsolidation

Consolidation is essentially a refinancing of all existing student loans into one Direct Loan.

In something of an oxymoron, a single loan can be consolidated.

The borrower must agree to repay the consolidated loan under an Income DrivenRepayment Plan.The Interest Rate for the new consolidated loan will be a weighted average of the previousThe Interest Rate for the new consolidated loan will be a weighted average of the previousloans.Consolidation may include collection costs of up to 18.5% of the principal and interestoutstanding on the defaulted loan.Default on Student Loans can only be cured once through consolidation, unless other loansare later consolidated.Consolidation generally takes 30-90 days.

SSolutions for Defaulted of Federal LoansRehabilitation

Rehabilitation requires the borrower to make nine (9) payments in ten (10) months.

Payments must be reasonable and affordable, based on review and IDR.

Payments made through Administrative Wage Garnishment do not count.

Nor does the Administrative Wage Garnishment stop until five (5) payments have beenmademade.Consolidation may include collection costs of up to 18.5% of the principal and interestoutstanding on the defaulted loan.Default on Student Loans can only be cured once through consolidation, unless other loansare later consolidated.

SSolutions for Defaulted of Federal LoansChapter 13

11 U.S.C. § 1322(b)(3) provides that “the plan may … provide for the curing or waiving ofany default.” (Emphasis added.)“Any default” should include student loan or even a default under a rehabilitation.

“Curing”, which generally means catching up on missed payments, must mean somethingdifferent from “waiving”, which implies forgiving of missed payments.11 U.S.C. § 1322(b)(5), which routinely is used to allow the cure and maintenance ofmortgage payments, specifically allows the same treatment for “any unsecured claim … onwhich the last payment is due after the date on which the final payment under the plan isdue”, which would include non-dischargeable student loans.Such a cure or waiver could avoid the assessment of collection costs of up to 18.5% of theoutstanding principal and interest.It should be expected that such a plan would face vigorous opposition from the Departmentof Education and heightened judicial scrutiny.

FFederal Loan Repayment Options

• Standard RepaymentTerm of up to 10 years

• Graduated RepaymentTerm of 10 yearsAmount steps up every two yearsAmount steps up every two years.

• Extended RepaymentBalance of over $30kTerm of up to 25 years

• Extended Graduated RepaymentBalance of over $30kTerm of up to 25 yearsAmount steps up every two years.

FFederal Loan Repayment Sample

Original Loan Amount(3.4% Interest Rate)

$25,000 $50,000 $100,000

Standard $246 $492 $984

Graduated $159 $318 $636Graduated $159 $318 $636

Extended N/A $248 $743

Extended Graduated N/A $142 $283

FFederal Loan Repayment OptionsIncome Driven Repayment Plans

• Income Contingent Repayment (ICR)• Income Based Repayment (IBR)• Pay As You Earn (PAYE)

FFederal Loan Repayment OptionsIncome Contingent Repayment Plans

• Based solely on 15% of disposable income and loan balance.• Assets are not relevant.• Direct Loans only.• Parent Plus cannot have ICR, unless consolidated.• Economic Hardship Deferments count towards 25 years.• Balance cancelled after 25 years.• Cancelled amount may be taxable income.

FFederal Loan Repayment OptionsIncome Based Repayment Plans

• Based solely on 15% of disposable income and loan balance.• Family size includes all people supported at least half-time regardless of tax statusor physical custody.

• If married and file joint tax return, both incomes are used in the calculation, ifseparate tax returns, only the borrower’s income is used in the calculation.

• Assets are not relevant.• IBR Repayment must be less than Standard Repayment to qualify.• Direct Loans only.• Parent Plus cannot have IBR, even if consolidated.• Economic Hardship Deferments count towards 25 years.• Balance cancelled after 25 years.• Cancelled amount may be taxable income.

FFederal Loan Repayment OptionsPAYE Plans

• Based solely on 10% of disposable income and loan balance.• Family size includes all people supported at least half-time regardless of tax statusor physical custody.

• If married and file joint tax return, both incomes are used in the calculation, ifseparate tax returns, only the borrower’s income is used in the calculation.

• Assets are not relevant.• IBR Repayment must be less than Standard Repayment to qualify.• Direct Loans originated after October 2011 only.• Economic Hardship Deferments count towards 25 years.• Balance cancelled after 20 years.• Cancelled amount may be taxable income.• Recently revised with the REPAYE Plan.

FFederal Loan Repayment OptionsPublic Service Loan Forgiveness

• Work for a “qualifying employer” specifically a governmental unit or a501(c)(3) non-profit.

• Make 120 “qualifying payments” under IBR/ICR/PAYE or StandardRepayment after July 2007.Repayment after July 2007.

• Balance forgiven, tax-free, after 120 payments.• Teachers can have $17,500 in loans forgiven after teaching math,science or special ed in qualifying schools for 5 consecutive years.Other teachers can have $5,000 forgiven.

FFederal Loan IBR Repayment Sample

Total Household Income

Household Size $25,000 $50,000 $100,000

1 $50 $420 $1,050

2 $0 $350 $970

3 $0 $280 $900

4 $0 $210 $830

FFederal Loan Repayment Calculation

• To calculate the various student loan repayment options, go to:

https://studentloans.gov/myDirectLoan/p // g / y /mobile/repayment/repaymentEstimator.action

PParticipation in IDR and Chapter 13•Previously the Department of Education, its GuarantyAgencies and Student Loan Servicers would place allstudent loans for Chapter 13 Debtors in administrativeforbearance.

• This meant that no collection actions were taken, butThis meant that no collection actions were taken, butinterest continued to accrue.

•Accordingly, $100,000 of student loans at 8% interestwill grow to $148,984.57 at the end of a 60-monthChapter 13 Plan.

• The “fresh start” becomes a “false start.”

PParticipation in IDR and Chapter 13• The Department of Education had refused to allowChapter 13 Debtors to participate in the variousincome driven repayment plans.

•When pressed with the argument that 11 U.S.C. §525(c) prohibited such discrimination, the525(c) prohibited such discrimination, theDepartment of Education consented to allowingChapter 13 Debtors to participate in IDRs if Chapter 13Plans contained the following provisions from theBuchanan case:

BBuchanan Provisions• The Debtor is not seeking nor does this Plan provide for any discharge, in whole or in part, of her student loan obligations.

• The Debtor shall be allowed to seek enrollment in any applicable income-driven repayment (“IDR”) plan with the U. S. Department ofEducation and/or other student loan servicers, guarantors, etc. (Collectively referred to hereafter as “Ed”), without disqualification due toher bankruptcy.

• Ed shall not be required to allow enrollment in any IDR unless the Debtor otherwise qualifies for such plan.

• The Debtor may, if necessary and desired, seek a consolidation of her student loans by separate motion and subject to subsequent courtorder.

• Upon determination by Ed of her qualification for enrollment in an IDR and calculation of any payment required under such by the Debtor,the Debtor shall, within 30 days, notify the Chapter 13 Trustee of the amount of such payment. At such time, the Trustee or the Debtor may,if necessary, file a Motion to Modify the Chapter 13 Plan to allow such direct payment of the student loan(s) and adjust the payment toother general unsecured claims as necessary to avoid any unfair discrimination.

• The Debtor shall re-enroll in the applicable IDR annually or as otherwise required and shall, within 30 days following a determination of herupdated payment, notify the Chapter 13 Trustee of such payment. At such time, the Trustee or the Debtor may, if necessary, file a Motion toModify the Chapter 13 plan to allow such direct payment of the student loan(s) and adjust the payment to other general unsecured claimsas necessary to avoid any unfair discrimination.

• During the pendency of any application by the Debtor to consolidate her student loans, to enroll in an IDR, direct payment of her studentloans under an IDR, or during the pendency of any default in payments of the student loans under an IDR, it shall not be a violation of thestay or other State or Federal Laws for Ed to send the Debtor normal monthly statements regarding payments due and any othercommunications including, without limitation, notices of late payments or delinquency. These communications may expressly includetelephone calls and e-mails.

• In the event of any direct payments that are more than 30 days delinquent, the Debtor shall notify her attorney, who will in turn notify theChapter 13 Trustee, and such parties will take appropriate action to rectify the delinquency.

• The Debtor’s attorney may seek additional compensation by separate applications and court order for services provided in connection withthe enrollment and performance under an IDR.

BBuchanan Provisions• The Debtor is not seeking nor does this Plan provide for anydischarge, in whole or in part, of her student loanobligations.

An over-arching concern by the Department of Education appears to be that, following UnitedStudent Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), “unscrupulous debtors [will] abuse theCh 13 b fili l i di i h h d h d hi i iChapter 13 process by filing plans proposing to dispense with the undue hardship requirement inthe hopes the bankruptcy court will overlook the proposal and the creditor will not object.” Id. at16.

It is best to address this concern directly, both by specifically disavowing any present attempt atdischarge and by asking that the Plan be specially set for a Confirmation Hearing.

BBuchanan Provisions• The Debtor shall be allowed to seek enrollment in anyapplicable income-driven repayment (“IDR”) plan with theU. S. Department of Education and/or other student loanservicers, guarantors, etc. (Collectively referred to hereafteras “Ed”), without disqualification due to her bankruptcy.

This is a fundamental change in practice by Ed. and its servicers, which previously refused toconsider applications by Chapter 13 debtors for IDRs, instead placing student loans into an“administrative forbearance.”

The basis for this provision is the prohibition in 11 U.S.C. § 525 (c) which provides that a “Agovernmental unit that operates a student grant or loan program ... may not deny a student grant,loan, loan guarantee, or loan insurance to a person that is or has been a debtor under this title ...because the debtor ... is ... a debtor under this title....”

BBuchanan Provisions• Ed shall not be required to allow enrollment in any IDRunless the Debtor otherwise qualifies for such plan.

This is meant to prevent the debtor from asserting the confirmation of the plan on its ownenrolled the Debtor in an IDR or that the Debtor was given any special preference.

BBuchanan Provisions• The Debtor may, if necessary and desired, seek aconsolidation of her student loans by separate motion andsubject to subsequent court order.

Consolidation of several student loans may be necessary for enrollment in a specific IDR or if thedebtor was in default on her student loans. The plan provides that this will be approved by separatemotionmotion.

BBuchanan Provisions• Upon determination by Ed of her qualification for enrollmentin an IDR and calculation of any payment required undersuch by the Debtor, the Debtor shall, within 30 days, notifythe Chapter 13 Trustee of the amount of such payment. Atsuch time, the Trustee or the Debtor may, if necessary, file aMotion to Modify the Chapter 13 Plan to allow such directMotion to Modify the Chapter 13 Plan to allow such directpayment of the student loan(s) and adjust the payment toother general unsecured claims as necessary to avoid anyunfair discrimination.

This provides that once the monthly payment under an IDR is determined, the debtor will notifythe Chapter 13 Trustee, who would then have an opportunity to decide whether that requires ahigher dividend to unsecured creditors and if the IDR should be made directly or by “conduit.”

BBuchanan Provisions• The Debtor shall re-enroll in the applicable IDR annually or asotherwise required and shall, within 30 days following adetermination of her updated payment, notify the Chapter13 Trustee of such payment. At such time, the Trustee or theDebtor may, if necessary, file a Motion to Modify the Chapter13 plan to allow such direct payment of the student loan(s)13 plan to allow such direct payment of the student loan(s)and adjust the payment to other general unsecured claims asnecessary to avoid any unfair discrimination.

This provides a bit of a “carrot” for the Chapter 13 Trustee in consenting to the plan, in that thedebtor will annually notify the Trustee of changes in the monthly IDR, which could result in ahigher dividend to other unsecured creditors.

BBuchanan Provisions• During the pendency of any application by the Debtor toconsolidate her student loans, to enroll in an IDR, direct paymentof her student loans under an IDR, or during the pendency of anydefault in payments of the student loans under an IDR, it shallnot be a violation of the stay or other State or Federal Laws forEd to send the Debtor normal monthly statements regardingpayments due and any other communications including, withoutlimitation, notices of late payments or delinquency. Thesecommunications may expressly include telephone calls and e-mails.

The second greatest concern by Ed. appears to be that this plan is a devious attempt to trickstudent loan servicers into violating the automatic stay. The communications allowed arepatterned on those with mortgage servicers, but stop short of allowing non-bankruptcygarnishment or other involuntary collection.

BBuchanan Provisions• In the event of any direct payments that are more than 30days delinquent, the Debtor shall notify her attorney, whowill in turn notify the Chapter 13 Trustee, and such partieswill take appropriate action to rectify the delinquency.

This is to allow for monitoring of the IDR payments if made directly by the debtor.

It is important to remember that in regards to student loans, “delinquent” may not be the same as“default”, which requires that no payments have been made for more than 270 days. See 34 C.F.R.§ 685.102.

BBuchanan Provisions• The Debtor’s attorney may seek additional compensation byseparate applications and court order for services providedin connection with the enrollment and performance underan IDR.

This clearly the most important provision in this plan, allowing separate and additionali f h icompensation for these services.

OOptions for Chapter 13 Allowance of IDR• Separate Classification• Co-Sign Protection• Above-median debtor pays student loan fromdiscretionary income, i.e. Social Security or belt-tightening, earned in excess of PDI

• Below-median debtor extends plan to five yearsBelow median debtor extends plan to five years• Pro Rated Distribution to Other General UnsecuredClaims

• Chapter 20

§ 1322. Contents of plan* * *

(b) Subject to subsections (a) and (c) of this section, theplan may—

(1) designate a class or classes of unsecured claims

SSeparate Classification in Chapter 13

(1) designate a class or classes of unsecured claims,as provided in section 1122 of this title, but may notdiscriminate unfairly against any class so designated;however, such plan may treat claims for a consumer debtof the debtor if an individual is liable on such consumerdebt with the debtor differently than other unsecuredclaims;

RReasons for Separate Classification

• Reasons for classifying student loan creditorsseparately from other unsecured creditors inchapter 13 plan:

• Stay current on IDR.• Make progress towards 20/25 year cancellation or 10year PSLF.year PSLF.

• Maximize payment toward non-dischargeable debt.• Avoid accrual of post-petition interest: In re Kielisch, 258F.3d 315 (4th Cir. 2001).

JJudicial Standards• In re Leser, 939 F.3d 669 (8th Cir. 1991):

(1) whether the discrimination has a rational basis;(2) whether classification is necessary to debtor’s rehabilitationunder chapter 13;(3) whether the discrimination is proposed in good faith; and( ) p p g(4) whether there is meaningful payment to class discriminatedagainst

• Permitting Public Service Forgiveness eligibilityadvances debtor’s fresh start

• Less discriminatory approach would leave the debtoror creditors worse off

• Concurrent payment of student loans and secured

SSeparate Classification Allowed

p ydebts, followed by payment in full of unsecured debt

• Unsecured creditors receive at least as much as theywould in chapter 7 proceeding

• Nondischargeability, by itself, does not justifydiscrimination

• Public policy favoring student loan repayment ordebtor’s fresh start is not reasonable justification

SSeparate Classification Not Allowed

• Avoiding harm to the debtor is not a reasonable basisfor discrimination

• No proof that discrimination is necessary orreasonable

• Does the co-debtor stay under § 1301 protect parentsor other family members who may have co-signed thedebtor’s student loan?

• Does the “however clause” eliminate or qualify the

CCo-Sign Protection

• Does the however clause eliminate or qualify thefairness requirement?

• Do student loans co-signed by parents for children fallinto the § 1322(b)(1) consumer debt exception,permitting separate classification?

This Presentation and document are available at:www.ncbankruptcyexpert.com• Click on Student Loan Options and Chapter 13 Bankruptcy• Password: IDR13

DDocuments

• Thanks to Prof. Susan Hauser for statistics, John Rao forcase law and Joshua Cohen for details regarding studentloan programs.

STU

DE

NT

LO

AN

SA

ND

BA

NK

RU

PTC

Y:W

HE

NW

OR

LD

SN

EE

DN

OT

CO

LL

IDE

Edw

ardC

.Boltz

Law

OfficesofJohn

T.O

rcutt,P.C.

JohnR

aoN

ationalConsum

erL

awC

enter,Inc.

1.FederalStudentL

oanC

ollections

Thegovernm

enthasextraordinarypow

erstocollectstudentloan

debt. 1Federalstudent

loancollection

powershave

grown

som

uchovertim

ethatthe

governmentrarely

suesborrow

ers,optinginstead

foranarray

ofextra-judicialcollectiontools.

Theseoptionsinclude

taxrefund

offsets,federalbenefitoffsets,andadm

inistrativew

agegarnishm

ents.

While

arelatively

smallportion

ofthegovernm

ent’soverallcollectioneffort,there

aresom

eindicationsthatthe

U.S.D

epartmentofEducation

isincreasingitslitigation

efforts.A

ccordingto

Bloom

berg,inthe

fiscalyearendedSeptem

ber30,2012,thegovernm

entfiled4841

studentloancollection

lawsuits,alm

ostthreetim

esthenum

berfromthe

previousyear.

Privatelaw

yersfiledabout90%

ofthelaw

suits,handlingthe

suitsona

contingentfeebasis. 2

Studentloanlitigation

isevengreaterin

certainjurisdictions,due

atleastinpartto

aprivate

counselprogramin

theseareas. 3

Inaddition

tothese

powerfulcollection

tools,boththe

governmentand

guarantyagencies

relyheavily

onthe

useofprivate

collectionagenciesand

othermore

“traditional”collection

efforts.A

ccordingto

aD

epartmentofTreasury

reportin2009,the

Departm

entofEducationrefersevery

eligibledefaulted

debttoone

ofitsprivatecollection

agencies. 4In

fact,accordingto

industryinsiders,the

Departm

entcontractis“[t]hem

ostsoughtaftercontractwithin

thisindustry”

becauseofthe

ever-increasingvolum

eofdebtthatisextrem

elydifficultto

dischargein

bankruptcy. 5In

2014,thegovernm

entisprojectedto

payabout$1

billionin

comm

issionstoprivate

collectionagenciesin

2014,growing

toover$2

billionby

2016. 6

1Thisdiscussionofstudentloan

collectionisderived

fromN

CLC

’sStudentLoanLaw

,which

shouldbe

reviewed

foram

oredetailed

discussionofthisand

otherstudentloantopics.

2JohnH

echinger,Teacher’sWagesG

arnishedasU

.S.GoesafterLoan

Default,

ww

w.B

loomberg.com

(July2,2012).

3SeeR

onFrench,M

ichiganG

oesHard

afterStudentLoanD

efaulters,Bridge

Magazine,M

ay16,2012.4U

.S.Dep’tofthe

Treasury,U.S.G

overnmentR

eceivablesandD

ebtCollection

Activitiesof

FederalAgencies:

FiscalYear2009

Reportto

theC

ongress15(M

ar.2010),availableat

http://fmsq.treas.gov.

5SeeM

arkR

ussell,StudentLoans:TheA

RM

Industry’sNew

OilW

ell?,ww

w.insideA

RM

.com(O

ct.20,2011).6Presentation

ofDw

ightVigna,U

.S.Educ.Dep’t,2013

Know

ledgeSym

posium(N

ov.2013).

Totaldefaultedstudentloan

receivables(principalandinterest)serviced

bythe

Departm

entofEducation’sDefaultR

esolutionG

roup(D

RG

)increasedfrom

$17.4billion

attheend

offiscalyear20057to

$170.8billion

attheend

offiscalyear2013. 8C

ollectionsincreasedfrom

$2.082billion

infiscalyear2005

9to$12.010

billionin

fiscalyear2013. 10

According

toestim

atesin2015,the

governmentisexpected

tocollectroughly

$108.58on

every$100

ofdefaultedsubsidized

Staffordloans

and$105.40

onevery

$100of

unsubsidizedStafford

loansin2013. 11

Theseestim

ates,however,do

nottakeinto

accountcollection

costsorinflation.Even

afterfactoringin

collectioncostsand

inflation,therecovery

rateon

defaultstudentloansisstillveryhigh.

According

tothe

president’sfiscalyear2015budgetrequest,the

federalgovernmentexpectsto

eventuallyrecoverabout81.8%

oftheprincipaland

interestdueatthe

time

ofdefaultonsubsidized

Staffordloansm

adein

fiscalyear2013

thatgointo

defaultatanypointduring

repayment. 12

Itisestimated

thatoutstandingstudentloan

debtisapproaching$

1.2trillion

–itnow

surpassescreditcardsasthesecond-largestform

ofconsumerdebtbehind

home

mortgages. 13

2.R

evisitingthe

BrunnerStandard

TheBrunnerstandard

usedby

mostcourtsin

applyingthe

unduehardship

provisionin

section523(a)(8)w

asdevelopedovertw

enty-fiveyearsago. 14

Thenature

ofindividualstudent

7U.S.D

ep’toftheTreasury,U

.S.Governm

entReceivablesand

DebtC

ollectionA

ctivitiesofFederalA

gencies:FiscalY

ear2009R

eporttothe

Congress15

(Mar.2010),available

athttp://fm

sq.treas.gov.8U

.S.Dep’tofthe

Treasury,U.S.G

overnmentR

eceivablesandD

ebtCollection

Activitiesof

FederalAgencies,FiscalY

ear2013,Reportto

theC

ongress(July2014).

9U.S.D

ep’toftheTreasury,U

.S.Governm

entReceivablesand

DebtC

ollectionA

ctivitiesofFederalA

gencies:FiscalY

ear2009R

eporttothe

Congress15

(Mar.2010),available

athttp://fm

sq.treas.gov.10U

.S.Dep’tofthe

Treasury,U.S.G

overnmentR

eceivablesandD

ebtCollection

Activitiesof

FederalAgencies,FiscalY

ear2013,Reportto

theC

ongress(July2014).

11New

Am

.Found.,Fed.Educ.BudgetProject,FederalStudentLoan

DefaultR

ates(Sept.252014);see

alsoK

ellyField,G

overnmentVastly

UndercountsD

efaults,Chron.ofH

igherEduc.,July

11,2010.Fora

discussionofw

hyitisim

portanttoconsidercollection

costsandthe

depreciationof

money

overtime

inevaluating

the“true”

collectionrecovery

rate,seeJason

Delisle,M

isleadingN

umbers:FedsD

on’tProfitonStudentLoan

Defaults,H

igherEdW

atchB

log(Jan.18,2011);

Ben

Miller,Im

portantDefaultRate

Truths,TheQ

uickand

theEd

Blog

(July12,2010).

12Seegenerally

New

Am

.Found.,Fed.Educ.BudgetProject,FederalStudentLoan

Default

Rates(Sept.25

2014).13R

ohitChopra,StudentD

ebtSwells,FederalLoans

Now

Topa

Trillion,CO

NSU

MER

FIN

AN

CIA

LP

RO

TECTIO

NB

UR

EAU

(July17,

2013),w

ww

.consumerfinance.gov/new

sroom/student-debt-

swells-federal-loans-now

-top-a-trillion/.14B

runnerv.N.Y

.StateH

igherEduc.Servs.Corp.(In

reB

runner),46B

.R.752

(S.D.N

.Y.

1985),aff’d,831F.2d

395(2d

Cir.1987).

loandebt,the

structureofthe

loanprogram

s,andthe

Bankruptcy

Code

itselfhaveallchanged

significantlysince

1987.These

changeshavegiven

some

courtscauseto

questionthe

continuedutility

oftheBrunnerstandard. 15

Thefollow

ingfactorsshould

beconsidered

inarguing

forchangein

theundue

hardshipstandard:

Atthe

time

Brunnerwasdecided,debtorscould

dischargea

studentloanw

ithoutprovingundue

hardshipby

simply

byw

aitingfive

yearsaftertheloan

came

due; 16

Atthe

time

Brunnerwasdecided,debtorscould

dischargea

studentloanin

achapter13

casew

ithoutprovingundue

hardshipand

withoutw

aitingfive

yearsaftertheloan

came

due; 17

Thefactsin

Brunnercasew

ereextrem

e–

thedebtorsoughtto

dischargestudentloansjusta

fewm

onthsaftershereceived

am

aster’sdegree(m

ightexplain

why

theBrunnercourtadded

agood

faithprong

tothe

testdespitelack

ofanytextualbasisforthisin

§523(a)(8));

When

theBrunnertestw

asadopted,thetim

eperiod

forreviewing

factorssuch

asthelikelihood

thatthedebtor’shardship

willpersistorthe

debtor’sgood

faith(the

secondand

thirdprongsofthe

test)wassim

plythe

five-yearperiod

aftertheloan

came

due;C

ongresssubsequentlyelim

inatedallw

aitingperiodsfordischarge

without

provingundue

hardshipand

expandedthe

dischargeexception

in2005

toinclude

privatestudentloans; 18

Thistestrequiresdebtorstoshow

:(1)thestudentloanspreventthe

debtorandthe

debtor’sdependentsfromm

aintaininga

“minim

al”standard

ofliving;(2)additional

circumstancesexistindicating

thatthehardship

islikelyto

continuefora

“significantportionof

therepaym

entperiod;”and

(3)thedebtorhasm

adea

good-faitheffortto

repaythe

loans(andto

maxim

izeincom

eand

limitexpenses).

15Seee.g.,In

reR

oth,490B

.R.908,920/-/23

(B.A

.P.9thC

ir.2013)(Pappas,B.J.,concurring);

Kriegerv.Educ.M

gmt.C

orp.,713F.3d

882,884(7

thCir.2013)(noting

itisimportantnotto

allow“judicialglosses”

ofthestatutory

language,suchasfound

inBrunner,to

supersedethe

statuteitself);

Inre

Myhre,503

B.R

.698,702-703(B

ankr.W.D

.Wis.2013)(noting

thatwhen

itw

asdecidedBrunner“only

appliedto

asm

allsubsectionofstudentloans”

andthe

Code

andthe

natureofstudentloan

borrowing

havechanged

significantlysince

then);Inre

Wolfe,501

B.R

.426,434-35

(Bankr.M

.D.Fla.2013)(“There

ismeritto

theargum

entthattherigorsofthe

Brunnertestareno

longerappropriateto

curbborrow

erabusefrom

aprem

aturedischarge

amidst

onlytem

poraryfinancialdistress.”).

16In1990,C

ongressextendedthe

five-yeardischargeexception

periodto

sevenyears.

17Until1990,section

523(a)(8)onlyapplied

tochapter7

cases,sochapter13

debtorswere

ableto

dischargetheirstudentloansaftercom

pletinga

chapter13plans

Congressam

endedthe

Code

in1990

tom

akesection

523(a)(8)applicablein

chapter13cases.

18In1998,C

ongresseliminated

thethen

existingseven-yearw

aitingperiod.H

igherEducationA

mendm

entsof1998,Pub.L.No.105-244,112

Stat.1581(1998).

Subsection523(a)(8)(B

)dealing

with

privatestudentloansw

asaddedin

2005by

BA

PCPA

.

Congressalso

addedin

2005a

definitionof“undue

hardship”in

anunrelated

Code

section, 19forpurposesofreviewing

reaffirmation

agreements,thatisfar

more

lenientthanthe

Brunnertest; 20

Many

debtors20to

30yearsago

were

ableto

repaym

odestamountsof

studentloanin

areasonable

time;debtorsnow

carryexorbitantdebtforlife;

Extreme

collectiontoolsnow

exist(administrative

wage

garnishment;tax

refundand

benefitsoffset;nostatute

oflimitationsforgovernm

entloans;excessive

collectionfees);

TheBrunnertestfailsto

accountfordebtcancellationtax

consequencesofadm

inistrativedischarges.

3.A

dministrative

Repaym

entPlans:ShouldT

heyB

ea

SubstituteFor

Bankruptcy

Discharge?

Studentloancreditorsw

illalmostcertainly

arguethatthe

debtorcannotproveundue

hardshipbecause

thedebtoriseligible

for(ordidnotapply

for)anadm

inistrativerepaym

entplan,such

asanincom

e-contingentrepaymentplan

(ICR

P),income-based

repaymentplan

(IBR

),orPay

asYou

Earnplan

(“PAY

E”).C

ourtsgenerallyhave

heldthatthe

availabilityof

administrative

plansisafactorto

beconsidered

inthe

unduehardship

evaluation,particularlyunderthe

“goodfaith”

test. 21A

tthesam

etim

e,allcourtsagreethatparticipation

inan

income-

basedplan

isnotrequiredto

satisfythe

“goodfaith”

standard. 22Thefollow

ingfactorsshould

beconsidered

inw

eighingthe

relevanceofsuch

plans:

IBR

andotheradm

inistrativerepaym

entplansarenotavailable

forprivatestudentloans;D

ebtorsneedto

recertifyand

make

requiredpaym

entsforIBR

andotherplans

everyyearfor20-25

yearstoavoid

redefault(nostatisticscurrently

availableon

planre-defaults);

Foreseeableinability

torepay

evenunderBrunnersecond

prongshould

be

1911

U.S.C

.§521(m),

which

presumesa

reaffirmation

isanis“an

unduehardship

onthe

debtorifthe

debtor'smonthly

income

lessthedebtor'sm

onthlyexpenses…

islessthanthe

scheduledpaym

entsonthe

reaffirmed

debt.”20See

e.g.,H

ansenv.Sallie

Mae

Inc.,2014U

.S.Dist.LEX

IS113998(W

.D.W

ash.Aug.14,

2014)(evenif§

521(m)served

asnewdefinition

for“unduehardship”,the

debtorhadexcess

income.)

21Inre

Nys,446

F.3d938,947

(9thC

ir.2005)(debtor’sconsiderationofIC

RP

optionisan

importantindicatorofgood

faith);Inre

Frushour,433F.3d

393,402(4th

Cir.2005)(im

portantcom

ponentofgoodfaith

inquiry);Inre

Alderete,412

F.3d1200,1206

(10thC

ir.2005)(carries“significantw

eight”in

evaluatinggood

faith);Inre

Tirch,409F.3d

677,682(6th

Cir.2005)

(decisionnotto

takeadvantage

ofICR

Pprobative

ofdebtor’sintenttorepay).

22Inre

Mosley,494

F.3d1320

(11thC

ir.2007)(rejectinga

perserule

thatdebtorcannotshowgood

faithifdebtordid

notenrollinIC

RP);In

reB

arrett,487F.3d

353,364(6th

Cir.2007);In

reN

ys,446F.3d

938,947(9th

Cir.2006);In

reA

lderete,412F.3d

1200,1206(10th

Cir.2005);

Inre

Frushour,433F.3d

393,402(4th

Cir.2005).

loanterm

(10years),not20-25

years; 23

Planscanlead

tonegative

amortization; 24

Adm

inistrativerepaym

entplansshouldnotbe

soledeterm

inantofgoodfaith

underBrunnerthirdprong; 25

Discharge

underplanscanlead

totax

consequences;26

Debtorsare

notalwayseligible

foradministrative

repaymentplans(debtor

mustgetoutofdefaultby

consolidationorrehabilitation).

4.C

o-Borrow

ersasCreditors

Dischargeability

disputesoccasionallyarise

between

differentindividualswho

were

responsibleforpaying

thesam

estudentloan.

Forexample,one

co-borrowerw

hopaid

offastudentloan

may

assertaclaim

forreimbursem

entfromthe

non-payingco-borrow

er.Ifthe

non-paying

co-borrowerfilesforbankruptcy

relief,doestheco-borrow

erwho

paidoffthe

loanhave

aclaim

thatfitswithin

thedischarge

exceptionof§

523(a)(8)?

Subsection(A

)(i)of§523(a)(8)w

ouldnotapply

becausesuch

aclaim

isnotabenefit

overpaymentorloan

made

inconnection

with

anon-profitorgovernm

ententity. 27N

oristhe

23Kriegerv.Educ.C

reditManagem

entCorp.713

F.3d882,884

(7thC

ir.2013)(respondingto

longertermrepaym

entplanoption,courtnotesthatifgood

faithentailed

comm

itmentto

futureeffortsto

repay,“noeducationalloan

evercouldbe

discharged,becauseitisalw

ayspossibleto

payin

thefuture

shouldprospectsim

prove”).24

Seee.g.,K

eilischv.Educ.C

reditMgm

t.Corp

(Inre

Kielisch),258

F.3d315

(4thC

ir.2001)(§

502doesnotfreeze

thestudentloan

debtnorbarthecreditorfrom

applyingthe

planpaym

entstow

ardspost-petitioninterest.)

25See

e.g.,Bene

v.EducationalManagem

entCorp.(In

reB

ene),474B

.R.56

(Bankr.W

.D.

N.Y

.2012)(debtorwasnotrequired

toindenture

herselffor25yearsunderthe

William

D.Ford

repaymentprogram

.)26In

reC

oco,335Fed.A

ppx.224,2009W

L1426757,at*4

(3dC

ir.May

22,2009)(unpublished

decision)(reversingfinding

ofnondischargeabilityand

ruling,interalia,thatlower

courtgavetoo

much

weightto

debtor’srefusaltoenrollin

ICR

P,noting“herparticipation

inthe

ICR

Pcould

ultimately

resultinhersim

plytrading

astudentloan

debtforanIR

Sdebt”);In

reB

rooks,406B

.R.382,394-95

(Bankr.D

.Minn.2009)(potentialtax

liabilityafterextended

repaymentperiod

isasignificantdraw

backto

ICR

Poption);In

reD

urrani,311B

.R.496,508

(Bankr.N

.D.Ill.2005),aff’d,320

B.R

.357(N

.D.Ill.2005)(courtm

usttakeinto

accountconsiderable

taxburden

debtorwillface

atendoftw

enty-five-yearrepaymentperiod);In

reB

runell,356B

.R.567

(Bankr.D

.Mass.2006);In

reA

llen,324B

.R.278,282

(Bankr.W

.D.Pa.

2005).Butsee

EducationalCreditM

gmt.C

orp.v.Jesperson,571F.3d

775,782(8th

Cir.2009)

(taxliability

frompossible

futuredebtforgivenessisspeculative);EducationalC

reditMgm

t.C

orp.v.Rhodes,464

B.R

.918(W

.D.W

ash.2012)(minim

izingdebtor’sconcernsovertax

consequences,notingthatcancellation

ofdebtatendoflong-term

repaymentplan

onlyresultsin

taxliability

ifborrower’sassetsexceed

liabilitiesattime

ofcancellation).27In

reC

orbin,506B

.R.287,295

(Bankr.W

.D.W

ash.2014)(co-borrowerw

hopaid

ofstudentloan

notcoveredby

§523(a)(8(A

)(i));Inre

Rust,510

B.R

.562,571(B

ankr.E.D.K

y.2014)(notreaching

coverageunder§

523(a)(8)(i)butsuggestingco-borrow

erwith

subrogationrightscould

claima

qualifyingeducationalloan

undertheIR

Sdefinition

incorporatedinto

§523(a)(8)(B

).Thisleavessubsection

(A)(ii)of§

523(a)(8),which

preservesfromdischarge

“anobligation

torepay

fundsreceivedasan

educationalbenefit.”Som

ecourtshave

appliedthisprovision

todeclare

nondischargeablethe

claimfiled

bya

co-borrowerw

hopaid

offastudentloan. 28

According

tothese

courts,any“educationalbenefit”

thatthedebtorreceivestriggersthe

barriersagainstdischarge,and

itdoesnotmatterw

hothe

creditoris.

Thisisanextrem

elybroad

viewofsubsection

(A)(ii)of§

523(a)(8).The

legislativehistory

suggeststhatthe“educationalbenefit”

languagew

asnotintendedto

coverloantransactions. 29

Construing

subsection(A

)(ii)of§523(a)(8)to

applyto

loanswould

rendermuch

oftherem

ainingportionsofthe

subsectionsuperfluous. 30

Infact,ifallloansw

ere“educational

benefits,”there

would

havebeen

noreason

forCongressto

add§

523(a)(8)(B)in

2005m

akingprivate

studentloansnondischargeable.B

asedon

thisandotherreasoning,severalcourtshave

appropriatelyexcluded

obligationstoco-borrow

er’sfrom§

523(a)(8)’sprotections. 31

5.Private

StudentLoansand

Co-B

orrowers:A

utomatic

DefaultC

lauses

Privatestudentloan

contractstypicallyprovide

thatthefiling

ofbankruptcyby

theborrow

eroranyco-borrow

erisaneventofdefaultthatw

illtriggeraccelerationofthe

loan. 32

Thesecontractprovisionsare

routinelyenforced

byprivate

studentloancreditorsupon

thefiling

potentiallyclaim

protectedstatus);In

rePosner,434

B.R

.800(B

ankr.E.D.M

ich.2010)(§

523(a)(8)notintendedto

coveranyonew

hopaysoffa

studentloan,co-signorisnotalender).

28Inre

Corbin,506

B.R

.287,295(B

ankr.W.D

.Wash.2014)(§

523(a)(8)(ii)applieswhenever

debtorreceivedan

educationalbenefit,regardlessofwho

providedit);

Inre

Rust,510

B.R

.562,571

(Bankr.E.D

.Ky.2014)(construing

ambiguousterm

sofloanagreem

entsasiftheycreated

rightofsubrogationforco-borrow

erwho

paidoffloan,giving

co-borrowerallrightsoforiginal

lenderofformerloan).

Both

decisionserroneouslystate

thatthetextof§

523(a)(8)(A)(ii)

appearedaspartofthe

2005B

APC

PAam

endments.

Rust,510B

.R.at570;

Corbin,506

B.R

.at296.

Congressadded

thecurrent(A

)(ii)languageto

§523(a)(8)in

1990.See

Inre

Segal,57F.3d

342(3d

Cir.1995)(discussing

enactmentofw

hatisnow§

523(a)(8)(A)(ii)).

29Thelegislative

historystatesthatthe

language“extendsthe

Bankruptcy

Code’s

nondischargeabilityofstudentloansto

debtswhich

aresim

ilarinnature

tostudentloans.”

136C

ong.Rec.H

13288(O

ct.27,1990).30In

reScott,287

B.R

.470,474(B

ankr.E.D.M

o.2002)(applyingpre-2005

versionof§

523(a)(8),courtheldthatifthe

“educationalbenefit”language

“were

interpretedto

mean

thatalleducationalloansw

ereexcepted

fromdischarge

thenthe

firsttwo

categories…w

ouldcertainly

berendered

meaninglessand

superfluous”).31In

rePosner,434

B.R

.800(B

ankr.E.D.M

ich.2010);Inre

Pryor,234B

.R.716

(Bankr.W

.D.

Tenn.1999).See

alsoIn

reW

alker,439B

.R.854

(W.D

.Pa.2010)(debtorwho

tookover

obligationto

paystudentloan

aspartofmaritalagreem

entmay

dischargedebt;creditorex-

spousenotentitled

toprotectionsunder§

523(a)(8)simply

becauseobligation

isstudentloan).32The

Consum

erFinancialProtectionB

ureaureportsthatapproxim

ately90%

ofprivatestudent

loanswere

co-signedin

2011.See

CFPB

Mid-yearU

pdateon

StudentLoanC

omplaints,A

pril,2014.

ofabankruptcy

evenifthe

non-filingborrow

eriscurrentonthe

loanand

intendstocontinue

making

payments.

Forexample,m

anyprivate

studentloancreditorsw

illrefuseto

acceptinstallm

entpaymentsfrom

astudentborrow

erwhen

hisorherparent/co-borrowerfiles

bankruptcy,andw

illdemand

thatthefullloan

balancebe

paid.M

anydebtorsare

unaware

thattheirchildren’sstudentloansw

illbeputin

defaultbecauseoftheirbankruptcy

filing.

Section365(e)ofthe

Bankruptcy

Code

addresseswhetherthese

bankruptcyor“ipso

facto”clausesare

enforceablein

bankruptcy.B

ecausethatsection

expresslyprovidesthatsuch

clausesarenotenforceable

with

respecttoexecutory

contractsandunexpired

leases,many

courtshave

heldthatthey

arenotinvalid

undertheC

odew

ithrespectto

otherdebts. 33H

owever,som

ecourtshave

foundthatthe

Code

invalidatesipsofacto

clausesotherthanthose

specificallym

entionedin

section365(e)(1). 34A

tleastinthose

jurisdictionswith

favorablelaw

,debtorsmay

arguethatthese

automatic

defaultclausesinprivate

studentloansarenotenforceable.

Iftheco-borrow

er(oftena

parent)filesachapter13

case,thecodebtorstay

underCode

section1301

protectsthenon-filing

co-borrower.Itpreventscreditorsfrom

takingany

actionto

collectthedebtagainstco-borrow

erswho

havenotfiled

forbankruptcy,ifthedebtisbeing

paidunderthe

debtor’schapter13plan.

Evenifthe

debtor’splandoesnotprovide

forpaymentofthe

debt,thecodebtorstay

remainsin

effectuntilitisliftedby

thecourtupon

acreditor’srequest.

Ifthe

studentloancreditorinvokesthe

bankruptcyclause

againstthenon-filing

borrowerby

acceleratingthe

noteand

demanding

fullpaymentw

hilethe

codebtorstayisin

effect,thiswould

bean

attemptto

collectthedebtin

violationofthe

codebtorstay.C

ourtshavegenerally

permitted

either(orboth)thedebtorand

thenon-filing

co-borrowerto

filem

otionsforcontempt

seekingsanctionsagainsta

creditorwho

violatesthecodebtorstay. 35

Ifeitherthestudentorthe

co-borrowerfilesa

chapter13case,they

canpropose

aplan

provisionenjoining

theprivate

studentloancreditorfrom

enforcingthe

bankruptcyclause

orseeking

collectionfrom

thenon-filing

studentorco-borrower.

Bankruptcy

Rule

7001(7)providesthatan

adversaryproceeding

isnotneededifa

requestforinjunctivereliefism

adein

aplan.

Indistrictsthathave

modelchapter13

plans,thismay

beadded

asanon-standard

provision.

6.StudentL

oanC

ollectionC

osts

Inaddition

to“special”

incentivesforgoodperform

ance,studentloancollectorsreceive

acom

mission

ona

paymentm

adeby

theborrow

eraslongasthe

collectorhasbeenassigned

thefile,w

hetherornottheborrow

er’spaymentw

asinstigatedby

thatcollector’sactions.The

33E.g.,Inre

AM

RC

orp.,485B

.R.279,296-97

(Bankr.S.D

.N.Y

.2013)aff'd,730F.3d

88(2d

Cir.2013);In

reY

atesDev.,Inc.,241

B.R

.247,253(B

ankr.M.D

.Fla.1999),aff'd,256F.3d

1285(11th

Cir.2001).

34RiggsN

at.Bank

ofWashington,D

.C.v.Perry,729

F.2d982

(4thC

ir.1984);GeneralM

otorsA

cceptanceC

orp.v.Rose,21

B.R

.272,276(B

ankr.D.N

.J.1982).35In

reJuliao,2011

WL

6812542(B

ankr.E.D.M

ich.Nov

29,2011)(motion

filedby

bothdebtorand

codebtor);Inre

Bertolam

i,235B

.R.493,495

(Bankr.S.D

.Fla.1999)(motion

filedby

debtor);Inre

Hughes,2005

WL

1293982(B

ankr.M.D

.N.C

.May

2,2005)(same).

Departm

entofEducationthen

deductsanam

ountroughlyequalto

thecom

mission

ithaspaidits

collectorfromthe

borrower’spaym

ent.O

nlythe

amountleftoverafterthe

comm

issionispaid

isappliedto

interestandthen

principal,inthatorder. 36

TheH

igherEducationA

ctprovidesthatcollection

feesmustbe

“reasonable.”37The

Departm

entclaimsthatthisprovision

appliestoall

loans,wheneverm

ade. 38

Collection

costsshouldbe

recalculatedeach

yearafteraloan

goesintodefault.

Asto

eachloan

indefault,the

amountofthe

previousyear’scollection

costsshouldbe

removed

fromthe

balanceofthe

loanand

thenew

lycalculated

rateshould

beapplied.

Ratesshould

alsobe

recalculatedeach

time

theloan

istransferredfrom

oneentity

toanother. 39

Therehave

beenseveralchallengesbroughtby

bankruptcytrusteesalleging

thatstudentloan

collectioncostsare

unreasonablebecause

theyare

notrelatedto

actualcostsincurredin

theparticularborrow

er’scase.To

date,thesecaseshave

beenunsuccessful,and

thecourtshave

upheldthe

Departm

ent’sregulations. 40

Thesecasesdid

notaddressthepractice

ofincludingin

abankruptcy

proofofclaima

lump-sum

amountforprepetition

collectioncosts. 41

Studentloancollectorsare

notpermitted

toassessan

amountin

advanceforcollection

feesbutmustinstead

apportiona

percentageofeach

paymenttow

ardcollection

fees. 42In

aneffortto

preventup-frontloadingofcollection

costs,the

3634C

.F.R.§

682.404(f)(paymentsare

appliedfirstto

collectioncostsand

thento

otherincidentalchargessuch

aslatecharges,then

tointerestand

principal);seePadilla

v.PaycoG

en.A

m.C

redits,Inc.,161F.Supp.2d

264(S.D

.N.Y

.2001)(defendant’ssumm

aryjudgm

entmotion

deniedon

plaintiff’sclaimthatdebtcollectorinduced

borrowerto

make

adow

npaym

entbyagreeing

toapply,in

violationoffederallaw

,thepaym

enttoward

principalonly).3720

U.S.C

.§1091a(b)(1);34

C.F.R

.§682.410(b)(2).

38U.S.D

ep’tofEduc.,PCA

ProceduresManual:2009

EDC

ollectionsContract,version

1.2at

23(lastupdated

July12,2012).

39Seegenerally

Inre

Evans,322B

.R.429

(Bankr.W

.D.W

ash.2005).40See,e.g.,EducationalC

reditMgm

t.Corp.v.B

arnes,318B

.R.482

(S.D.Ind.2004),aff’d,

Black

v.EducationalCreditM

gmt.,459

F.3d796

(7thC

ir.2006);Inre

Evans,322B

.R.429

(Bankr.W

.D.W

ash.2005);seealso

United

Statesv.Larson,2010W

L76433

(D.M

inn.Jan.5,2010)(agreeing

with

Blackand

affirming

theD

epartment’suse

ofacostaveraging

basisforcalculating

collectionfees;noting

thatthismethod

ispossiblyunfairbutisa

“publicpolicy

issue”).41

Forexample,in

Inre

Martish,2015

WL

167154(B

ankr.E.D.N

.C.Jan

12,2015),thedebtor

hada

federalconsolidationstudentloan

inthe

amountof$11,202.95,w

itha

9%interestrate.

Afterfiling

aninitialchapter7

case,andm

akingapproxim

ately$39,835

inpaym

entsonthe

loan,a

proofofclaimw

asfiledin

thesubsequentchapter13

caseasserting

thatthedebtorstillow

ed$27,021.57,including

$5,289.57in

prepetitioncollectionscosts.

4234C

FR§

682.404(f).The

Departm

enthastakenthe

positionthata

borrowerisnotlegally

obligatedto

paycoststhathave

notbeenincurred.M

emorandum

ofPointsandA

uthoritiesSupporting

Motion

toD

ismiss,H

utchinsv.U.S.D

ep’tofEduc.,No.C

V-F-02-6256-O

WW

-D

LB,at31

(E.D.C

al.filedA

pr.25,2003)(citingH

.R.R

es.300,99thC

ong.at396(1986),

reprintedin

1986U

.S.C.C

.A.N

.977).Theagenciescan

chargethe

borroweronly

thosecoststhat

Departm

enthasclarifiedthatthe

borrowerisnotlegally

obligatedto

paycoststhathave

notbeenincurred.

TheD

epartmenthasrecognized

thatthepractice

ofloadingfeesup-frontcan

actuallydiscourage

repaymentand

inany

casedoesnotreflectactualcosts. 43

Although

theD

epartment’s

regulationpreventing

advanceassessm

entofcollectioncostsw

asnotaddressedin

theopinion,

onecourthasheld

thatalum

p-sumam

ountforcollectioncostscould

beincluded

ina

prepetitionclaim

againstthedebtorsasitw

asneitherunmatured

norcontingentasofthepetition

date. 44

Courtsgenerally

haveheld

thatcollectioncostsare

partofthetotalstudentloan

obligation,similarto

interestcharges,andtherefore

arenondischargeable. 45H

owever,a

fewcourtshave

heldthatthe

automatic

stayprohibitsstudentloan

creditorsfromcharging

latefees,

collectioncosts,and

penaltiestodebtorsduring

achapter13

bankruptcycase,and

thatthedebtors'chapter13

dischargespreventstudentloancreditorsfrom

everattempting

toassessthem

inthe

future. 46

7.T

reatmentofStudentL

oanD

ebtinC

hapter13

a.C

ureofa

Defaulton

aL

ong-Term

StudentLoan

Debtin

Chapter

13

Inthose

jurisdictionswhere

itisdifficulttoobtain

confirmation

ofaplan

providingfor

separateclassification

ofstudentloandebt,w

hichisdiscussed

below,a

usefulalternativeisto

curea

defaultonthe

studentloanpursuantto

11U

.S.C.§

1322(b)(5).Thissectionperm

itsthechapter13

debtorto“cure

adefaultand

maintain

paymentson

longterm

debtsonw

hichthe

finalpaym

entisdueafterthe

finalpaymentofthe

plan.”Thisdefinition

clearlyappliesto

anystudent

loanw

ithscheduled

paymentsthatw

illbedue

aftertheend

ofthechapter13

planperiod.

Anum

berofcourtshaveperm

ittedchapter13

debtorstodirectongoing

monthly

paymentsto

astudentloan

creditorunder§1322(b)(5). 47

havebeen

incurredasallocated

tothe

particularpayment.

43See61

Fed.Reg.60,482

(Nov.27,1996).

44Inre

Evans,322B

.R.429,438

(Bankr.W

.D.W

ash.2005)(“ECM

C'scalculation

ofthosecostsasa

matterofpreparation

ofitsclaimsw

asnotanassessm

entofapostpetition

claim;itw

asm

erelya

calculationofw

hatthedebtorsow

edasofthe

petitiondate”).

45E.g.,Inre

Belton,337

B.R

.471(B

ankr.W.D

.N.Y

.2006).46In

reB

oscaccy,442B

.R.501

(Bankr.N

.D.M

iss.2010)(adoptingreasoning

inIn

reH

arding);In

reH

arding,423B

.R.568

(Bankr.S.D

.Fla.2010).47In

reJohnson,446

B.R

.921(B

ankr.E.D.W

is.2011);Inre

Webb,370

B.R

.418(B

ankr.N.D

.G

a.2007)(debtormay

paygeneralunsecured

creditorsa1%

dividendthrough

planpaym

entsw

hilem

akingregularly

scheduledstudentloan

paymentsdirectly

tostudentloan

creditorpursuantto

11U

.S.C.§

1322(b)(5);Inre

Machado,378

B.R

.14,17(B

ankr.D.M

ass.2007)(inproviding

forcureand

maintenance

ofpayments,chapter13

plancan

allowforcurrentpaym

entsto

bepaid

bydebtordirectly

tocreditor,w

hileonly

paymentsto

cureprebankruptcy

arrearageneed

bepaid

throughtrustee

andsubjectto

trustee’scomm

ission);In

reK

night,370B

.R.429

(Bankr.N

.D.G

a.2007)(paymentofstudentloan

undersection1322(b)(5)perm

itteddespite

BA

PCPA

changestodisposable

income

testundersection1325(b)(1)(B

));Inre

William

s,253B

.R.220,227-28

(Bankr.W

.D.Tenn.2000);In

reC

handler,210B

.R.898

(Bankr.D

.N.H

.

Othercourtsrefuse

togive

effectto§

1322(b)(5)asadistinctC

odeprovision

andhave

requireddebtorsproposing

topay

ongoingstudentloan

paymentsdirectly

fromcurrentincom

eto

satisfythe

unfairdiscrimination

testunder§1322(b)(1). 48

Some

courtshaveinterpreted

aprovision

addedto

theC

odeby

the2005

amendm

entsaslim

itingthe

righttocure

andm

aintainpaym

entsona

nondischargeablestudentloan

inchapter

13.Section

1322(b)(10)statesthatifachapter13

planprovidesforthe

paymentofongoing

post-petitionintereston

anondischargeable

debt,theinterest“m

aybe

paidonly

tothe

extentthatthe

debtorhasdisposableincom

eavailable

topay

suchinterestafterm

akingprovision

forfullpaym

entofallallowed

claims.”

49Som

ecourtshave

interpretedthisam

endmentto

requirethe

debtortopropose

topay

allcreditors’claimsin

fullduringthe

chapter13case

ifthedebtor

wishesto

continuem

akingstudentloan

paymentsthatinclude

interest. 50Othercourtsrejectthis

view,finding

that§1322(b)(5)isa

specificprovision

thatcanbe

readconsistently

with

them

oregenerallanguage

of§1322(b)(10). 51

1997);Inre

Sullivan,195B

.R.649,658

(Bankr.W

.D.Tex.1996)(pursuantto

§1322(b)(5)

debtormay

maintain

currentpaymentsw

hilecuring

defaultwithoutrunning

afoulof§1322(b)(1));In

reC

ox,186B

.R.744,746-47

(Bankr.N

.D.Fla.1995);In

reB

enner,156B

.R.

631,634(B

ankr.D.M

inn.1993)(usingcure

andm

aintainprovisionsof§

1322(b)(5)isaform

ofseparate

classificationthatm

eetsthefairnessstandard

of§1322(b)(1)).

48Inre

Labib-Kiyarash,271

B.R

.189(B

.A.P.9th

Cir.2001)(use

ofsection1322(b)(5)is

subjecttodebtorshow

ingthatclassification

isfairundersection1322(b)(1));In

reK

ubeczko,2012

WL

2685115(B

ankr.D.C

olo.July6,2012);In

reZeigafuse,2012

WL

1155680(B

ankr.D

.Wyo.A

pr.5,2012);Inre

Pracht,464B

.R.486,490

(Bankr.M

.D.G

a.2012);Inre

Boscaccy,

442B

.R.501

(Bankr.D

.Miss.2010)(applying

§1322(b)(1)tocure

classification);Inre

Harding,423

B.R

.568(B

ankr.S.D.Fla.2010);In

reK

ruse,406B

.R.833

(Bankr.N

.D.Iow

a2009);In

rePora,353

B.R

.247(B

ankr.N.D

.Cal.2006)(fairnessstandard

appliestocure

classification);Inre

Simm

ons,288B

.R.737

(Bankr.N

.D.Tex.2003);In

reEdw

ards,263B

.R.

690(B

ankr.R.I.2001);In

reThibodeau,248

B.R

.699(B

ankr.D.M

ass.2000).4911

U.S.C

.§1322(b)(10).

50In

reStull,489

B.R

.217,223/-/24(B

ankr.D.K

an.2013)(§1322(b)(10)prohibitspaym

entofintereston


claimin

chapter13unlessallunsecured

claimspaid

infull);In

rePrecise,501

B.R

.67,72(B

ankr.E.D.Pa.2013)(agreeing

with

Stullindicta);In

reK

ubeczko,2012W

L2685115

*7(B

ankr.D.C

olo.July6,2012)(in

enacting§

1322(b)(10)C

ongressintendedbroad

restrictionon

cureand

maintenance

ofpaymentsunder§

1322(b)(5)forunsecured

debts).51

Inre

Brow

n,500B

.R.255,266

(Bankr.S.D

.Ga.2013)(§

1322(b)(5)specificallyappliesto

acure

inchapter13

andisnotsubjectto

thelim

itsonpaym

entofpost-petitioninterestfound

in§

1322(b)(10));Inre

Webb,370

B.R

.418,422(B

ankr.N.D

.Ga.2007)(§

1322(b)(5)isaspecific

provisionapplicable

tocure

ofadefaultin

along

termdebtand

isnotcontrolledby

them

oregeneralterm

sof§1322(b)(10));In

reFreem

an,2006W

L6589023

(Bankr.N

.D.G

a.2006)(§

1322(b)(10)notapplicablew

hendebtorim

plementing

cureand

maintain

provisionof§

1322(b)(5));Inre

William

s,253B

.R.220,227

(Bankr.W

.D.Tenn.2000)(pre-B

APC

PAdecision,“The

maintenance

ofongoingpaym

entsnecessarilyinvolvesthe

paymentofpost-

petitioninterest.”).

b.C

uringD

efaultsand/orM

aintainingPaym

entsonA

dministrative

Repaym

entPlans

A“cure”

inchapter13

under§1322(b)(5)paysongoing

scheduledinstallm

entsastheycom

edue

onthe

long-termdebtw

hilesim

ultaneouslym

akingm

onthlypaym

entstopay

backany

pre-bankruptcyarrearage.

The“cure”

nullifiesthecontractualconsequencesofany

pre-bankruptcy

defaultandrestoresthe

pre-defaultstatusquo. 52Thedebtor’splan

canadditionally

providethatany

prepetitiondefaultisbeing

“waived”

pursuantto§

1322(b)(3).Thismeans,for

example,thatdebtorsw

hofile

forchapter13reliefafterdefaulting

ona

long-termstudentloan

repaymentplan

shouldbe

ableto

reinstateand

maintain

participationin

sucha

repaymentplan. 53

Thiscanbe

veryhelpfulfora

debtorwho

hasdefaultedon

anincom

e-basedrepaym

entplan(IB

R)and

isnoteligibleforloan

rehabilitationorconsolidation

asaw

ayto

remedy

thedefault

undertheD

epartmentofEducation

(DO

E)regulations,becauseforexam

plethey

havehad

apriorrehabilitation

orconsolidationorare

subjecttoa

wage

garnishment.

Confirm

ationofthe

debtor’splanw

illpreventthefederalstudentloan

creditorfromtreating

thestudentloansasin

defaultorforbearanceduring

thechapter13

planorfrom

denyingthe

debtoranybenefitsunderthe

IBR

orotherrepaymentplan

(suchascredittow

ardstherequired

paymentperiod

fordischarge).Section

525(c)willalso

preventthefederalstudentloan

creditorfromdiscrim

inatingagainstthe

debtorbeforeand

afterthechapter13

casebased

onthe

bankruptcyfiling.

Achapter13

filingcan

protectthedebtorin

thissituationeven

ifthedebtorisnotin

defaultprepetition.Ifthe

debtorhasenteredinto

am

odificationorforbearance

agreementon

aprivate

studentloan,oranIB

Rorotheradm

inistrativerepaym

entplanin

thecase

ofafederal

loan,andperform

anceby

thepartiesrem

ainsdueatthe

time

thebankruptcy

isfiled,itcanbe

arguedthatthe

modified

loanagreem

entisanexecutory

contract. 54While

itisgenerallyaccepted

thatanagreem

entwhere

theonly

remaining

obligationisthe

paymentofm

oney,suchasprom

issorynote,isnotan

executorycontract, 55an

administrative

repaymentplan

(suchas

PAY

EorIB

R)involvescontinuing

performance

bythe

borrower,creditorand

Departm

entof

52Inre

Taddeo,685F.2d

24,27(2d

Cir.1982).

53Seee.g.In

reW

ard,392B

.R.788

(Bankr.W

.D.M

o.2008)(debtormay

curearrearage

onm

odifiedm

ortgage);Inre

Gellerm

an,263B

.R.691

(Bankr.D

.R.I.2001)(debtorperm

ittedto

curem

ortgagedefaultbased

onprepetition

repaymentagreem

entwith

HU

Dthatdid

notrequirepaym

entofsecuritizedarrearage

amount);

Inre

Epps,110B

.R.691,707

(E.D.Pa.1990)

(debtormay

curem

ortgagedefaultbased

onterm

sofgovernment-sponsored

paymentplan).

54An

executorycontractis“a

contractwhere

theobligation

ofboththe

bankruptandthe

otherparty

areso

farunperformed

thatthefailure

ofeithertocom

pleteperform

ancew

ouldconstitute

am

aterialbreachexcusing

performance

oftheother.”

SeeV

ernC

ountryman,Executory

Contracts

inB

ankruptcy:PartI,57M

inn.L.Rev.439,460

(1974).55See

MatterofR

ose,21B

.R.272,275

(Bankr.D

.N.J.1982)(quoting

House

ReportN

o.95-595,95th

Cong.,1stSess.347

(1977);SeeSenate

ReportN

o.95-989,95thC

ong.,2dSess.58

(1978)).

Education(beyond

simply

making

andreceiving

payments).

Thiscontinuingperform

anceincludesthe

annualcertificationofincom

eand

adjustmentofpaym

entsbasedon

income

changes,andthe

dischargeofthe

obligationafter20

to25

yearsofparticipationon

theplan. 56

Ina

chapter13case,the

debtorcanassum

ethe

modified

studentloancontract,including

theterm

sofanyPA

YE

orIBR

.Section

365(e)willpreventthe

studentloancreditororservicer

frominvoking

anycontractterm

or“applicablelaw

”(including

DO

Eregulations)againstthe

debtorthatwould

preventpaymentsfrom

beingapplied

properlyunderthe

repaymentplans.

Inotherw

ords,thebankruptcy

cannotbethe

basisforthedebtorto

loseany

rightsundertherepaym

entplans,andallpaym

entsmade

duringthe

chapter13plan

shouldcounttow

ardstheforgivenessordischarge

rightsunderthefederalrepaym

entplansasiftherehasbeen

noprepetition

default.

c.Separate

Classification

Absenta

findingofundue

hardshipunder11

U.S.C

.§523(a)(8),debtorsare

obligatedto

payupon

completion

oftheirchapter13bankruptcy

theam

ountowed

onstudentloan

debtthathasnotbeen

paidduring

theplan.

Thisincludesanyunpaid

interestonthe

debtthathasaccruedduring

theplan. 57W

henthatisthe

case,itisoftenin

thedebtor’sinterestto

payoffasm

uchof

thestudentloan

debtinthe

chapter13plan

asispermissible.

One

way

topay

more

onthe

studentloanthan

onotherunsecured

debtsistoseparately

classifythe

studentloanforpaym

entsatahigherpercentage

thanotherunsecured

debtspursuantto

11U

.S.C.§

1322(b)(1).R

ecentcaseshavebeen

divided,bothin

them

eansofanalysisandthe

result,astow

hetherstudentscanseparately

classifystudentloans.D

ebtorsareperm

ittedto

discriminate

among

similarclassesofcreditorsin

aplan.

Theissue

iswhethera


foronecreditordiscrim

inatesunfairlyagainstothercreditors.

Thefollow

ingare

casesum

mariesillustrating

argumentsfavoring


ofstudentloandebt:

Debtor

would

losedischarge

underPublic

Loan

Forgivenessprogram;

Discrim

inationadvancesthe

goaloffreshstartand

thepublic

policyobjective

ofpaying

offstudentloandebts.

Inre

Pracht,464B

.R.486

(Bankr.M

.D.G

a.2012)(separateclassification

andhigher

paymentrate

forstudentloandebtnotunfairly

discriminate

becauseitallow

eddebtorto

participatein

thePublic

LoanForgivenessprogram

andgave

herthechance

tow

riteoff

approximately

$50,000ofstudentloan

debt.Such

discrimination

advancedthe

goalofa

56SeeIn

reW

ard,392B

.R.788

(Bankr.C

t.W.D

.Mo.2008)(forbearance

agreementon

mortgage

loanw

asexecutorycontractthatcould

beassum

edby

thedebtor).

57Ifthestudentloan

debtisnondischargeable,postpetitioninterestw

illnotbedischarged.See

Inre

Kielisch,258

F.3d315

(4thC

ir.2001);Inre

Pardee,218B

.R.916

(B.A

.P.9thC

ir.1998),aff’d,187

F.3d648

(9thC

ir.1999);Inre

Jordan,146B

.R.31

(D.C

olo.1992).

freshstartforthe

debtorandthe

publicpolicy

objectiveofpaym

entofstudentloandebts.

Thecostofthisdiscrim

inationto

unsecuredcreditorsw

as5%,ora

totalofonly$5,000).

Discrim

inationnotunfair

when

thereisno

harmto

theunsecured

creditors.

Inre

Potgieter,436B

.R.739

(Bankr.M

.D.Fla.2010)(chapter13

planthatseparately

classifiedstudentloan

obligationand

proposedto

payitatthe

contractrateoutside

oftheplan

didnotunfairly

discriminate

becausethe

planprovided

forfullrepaymentofall

generalunsecuredclaim

s;thestudentloan

obligationw

asnon-dischargeablesuch

thatthedebtw

ouldbe

fullyrepaid

atsome

point;andthe

debtorhadthe

right,under§1322(b)(4),“to

provideforpaym

entsonany

unsecuredclaim

tobe

made

concurrentlyw

ithpaym

entsonany

securedclaim

”).

There

isareasonable

basisand/ora

lessdiscriminatory

approachw

ouldleave

thedebtor

orcreditorsw

orseoff.

Inre

Mason,456

B.R

.245(B

ankr.N.D

.W.V

a.2011)(separateclassification

toallow

studentloancreditorto

receivea

higherpercentagepaym

entthanotherunsecured

creditorsmay

beallow

edifthe

debtorcanarticulate

anon-arbitrary

reasonw

hythe

discrimination

isnecessaryand

demonstrate

thatalessdiscrim

inatoryapproach

isnotadvisable).

Inre

Boscaccy,442

B.R

.501(B

ankr.N.D

.Miss.2010)(in

consolidatedbankruptcy

cases,debtors’separateclassification

forlong-termstudentloan

debttoallow

forcureand

maintenance

notunfairlydiscrim

inatoryw

hensuch

classificationreduced

payments

tootherunsecured

creditorsby21%

and26%

becausefailure

tom

aintainpaym

entsonstudentloan

debtswould

leavedebtorsin

am

uchw

orseposition

thanthey

were

inprior

tofiling;separate

classificationw

asunfairdiscrimination

where

equaltreatmentofall

unsecuredcreditorsw

ouldreduce

thestudentloan

paymentby

20%w

hileincreasing

thedistribution

toothercreditorsby

80%).

Inre

Kalfayan,415

B.R

.907(B

ankr.S.D.Fla.2009)(separate

classificationofstudent

loanstoallow

formaintenance

ofpaymentsnotunfairly

discriminatory

becauseit

benefitedthe

verycreditorsw

how

erebeing

discriminated

against;debtorriskedlosing

heroptometry

license,understatelaw

,ifshefellbehind

onherstudentloan

payments

which

would

jeopardizeherability

topay

otherunsecuredcreditors).

Inre

Webb,370

B.R

.418(B

ankr.N.D

.Ga.2007)(directpaym

entstostudentloan

creditorsinaccordance

with

contracttermsisnotunfairdiscrim

inationbecause

generalunsecured

creditorswould

realizeonly

anadditional.2%

dividendin

theabsence

ofsuchdiscrim

inationw

hiledebtorsw

ouldotherw

isesufferneedlessaccrualofinterestand

penaltiesandm

ayface

theconsequencesofdefaultupon

completion

ofthechapter13

plan).

Inre

Freshly,69B

.R.96

(Bankr.N

.D.G

a.1987)(discrimination

notunfairwhere


ofstudentloanfrom

otherunsecureddebtw

asnecessaryforthe

debtor’srehabilitationunderchapter13,i.e.itw

ouldallow

himto

returnto

university

andearn

adegree

andin

lightofthepublic

policygoalofinsuring

repaymentofstudent

loans;planproposed

tofullpay

studentloandebtof$2,258.00

while

paying1%

of$5,314.53

ofremaining

unsecureddebt).

Paymentofstudentloans,ahead

ofotherunsecured

debt,notunfairdiscrim

ination

Inre

Foreman,136

B.R

.532(B

ankr.S.D.Iow

a1992)(debtor’splan,w

hichproposed

concurrentpaymentofstudentloansand

asecured

claim,to

befollow

edby

fullpayment

oftherem

ainingunsecured

claimsdid

notunfairlydiscrim

inateunderthe

testsetforthin

MatterofTuckerbecause

theplan

providedforfullrepaym

entofallunsecuredclaim

s;the

studentloanobligationsw

erenon-dischargeable;and

thedebtorhad

arightto

under§1322(b)(4)to

proposethisrepaym

entstructure).

Fundsusedare

inexcessofprojected

disposableincom

e.

Inre

Stull,2013W

L1279069

(Bankr.D

.Kan.M

ar.27,2013)(distinguishingthiscase

fromIn

reK

ubezcko,which

involveda

belowm

ediandebtor,courtholdsthatan

above-m

ediandebtor’schapter13

planto

separatelyclassify

andpay

anon-dischargeable

obligationfrom

income

earnedin

excessoftheprojected

disposableincom

ecom

mitted

topay

unsecureddebtdoesnotunfairly

discriminate;plan

inthiscase

ultimately

rejectedbecause

itproposedto

payintereston

thestudentloan,w

hichisprohibited

by§

1322(b)(10)absentprovisionto

payallallow

edclaim

sinfull).

Discrim

inationnotunfair

solong

asunsecuredcreditorsreceive

atleastasmuch

astheyw

ouldin

chapter7

proceeding

Inre

Tucker,159B

.R.325

(Bankr.D

.Mont.1993)(plan

thatproposedto

paynondischargeable

studentloandebtin

fullwhile

onlypaying

29%dividend

toother

unsecuredcreditorsdid

notunfairlydiscrim

inatebecause

creditorswould

otherwise

receivelittle

ornopaym

entunderaC

hapter7filing;the

discrimination

hada

reasonablebasis,i.e.allow

sfullrepaymentofstudentloans;allow

sforafresh

start;thediscrim

inationw

asnotproposedin

badfaith;and

thedegree

ofdiscrimination

was

directlyrelated

tothe

rationaleforthe

discrimination).

Inre

Boggan,125

B.R

.533(B

ankr.N.D

.Ill.1991)(“chapter13plan

may

providefora

greaterpercentagepaym

enttoan

educationallenderthanto

otherunsecuredcreditors,

butnotbyreducing

thepaym

entstothose

othercreditorstoa

levelbeloww

hattheyw

ouldgetin

aC

hapter7liquidation

ofthedebtor'sassets”;plan

thatproposedto

paystudentloan

debtsinfullbutonly

15%ofotherunsecured

debtsapproved).

Thefollow

ingare

casesum

mariesin

which


ofstudentloandebt

wasnotperm

itted:

Nondischargeability,by

itself,doesnotjustifydiscrim

ination

Inre

Groves,39

F.3d212

(8thC

ir.1994)(nondischargeabilityofstudentloansdoesnot,

byitself,justify

“substantial”discrim

inationagainstgeneralunsecured

debt;additionally,a

debtor’sinterestina

freshstartdoesnotjustify

separatelyclassifying

studentloansforthe

solepurpose

ofpayingthose

debtsina

mannerthatprejudicesotherunsecured

claims).

Inre

Sperna,173B

.R.654

(B.A

.P.9thC

ir.1994)(nondischargeability,onitsow

n,isnota

reasonablebasisforpreferentialtreatm

entofstudentloansanddoesnotdem

onstratethatsuch

discrimination

isnecessary;recordin

thesecasesdid

notprovidea

sufficientevidence

todeterm

ineifdiscrim

inationin

favorofstudentloanswasunfair;atissue

were

two

chapter13plansthatproposed

topay

studentloansinfullw

hilepaying

otherunsecured

debtlesseramounts,i.e.1.4%

and12.21%

)

McC

ulloughv.B

rown,162

B.R

.506(N

.D.Ill.1993)(chapter13

plansthatproposedto

paynondischargeable

studentloansinfulland

otherunsecuredclaim

sbetween

10%and

20%could

notbeconfirm

edon

thebasisofnondischargeability;courtholdsthatfora

planto

passtheunfairdiscrim

inationtest“debtorm

ustplacesom

ethingm

aterialontothe

scalestoshow

acorrelative

benefittothe

otherunsecuredcreditors”).

Studentloansco-signedby

parentsforchildren

donotfallinto

theconsum

erdebtexception

andthusm

ustmeetthe

unfairdiscrim

inationrequirem

ent

Inre

Santana,480B

.R.222

(Bankr.D

.P.R.2012)(lim

itingthe

applicationofthe

§1322(b)(1)consum

erdebtexceptionto

co-signeddebtacquired

forthebenefitofthe

debtorratherthana

co-signer,courtholdsthatastudentloan

co-signedby

debtorfatherforhisson

didnotfallw

ithinthe

exceptionbecause

studentsloansgenerallybenefitthe

co-signerandnotthe

debtor).

Freshstartand/or

publicpolicy

infavor

paymentofstudentloansisnot

reasonablejustification

fordiscrim

ination

Inre

Birts,2012

WL

3150384at4

(E.D.V

a.Aug.1,2012)(reversing

bankruptcycourt

approvalofchapter13plan

thatproposedto

paystudentloansoutside

oftheplan

therebyallow

ingthe

studentloanlenderto

bepaid

more

thanthree

timesasm

uchasother

unsecuredcreditorseven

thoughthe

studentloandebtcom

priseda

thirdoftotal

unsecureddebt.

Debtor’sstatusasa

singlem

otherwith

threechildren,hergeneric

interestina

“freshstart”

anda

strongpublic

policyin

favorofthefederalstudentloan

programw

ereinsufficientto

justifydiscrim

inationin

favorofthenon-dischargeable

studentloandebt;no

caselaw

supportedthisfirstreason

while

theotherreasonsw

erenot

uniqueand

existinevery

bankruptcycase

involvingstudentloans).

Inre

Bentley,266

B.R

.229(B

.A.P.1stC

ir.2001)(chapter13plan

topay

debtors’studentloan

debtinfullbuta

3.6%dividend

tootherunsecured

creditorswasunfair

discrimination;debtors’interestin

afresh

startdidnotjustify

discrimination

ina

planthatproposed

topay

onlythe

minim

umrequired

intothe

plan,i.e.projecteddisposable

income

overthreeyears.

Courtholdsthatw

herea

planredistributesbenefitsand

burdens

tobenefitthe

debtorbutburdenthe

credit,itcanonly

befound

fairifthereissom

eother

correlativebenefitto

theunsecured

creditors).

Avoiding

harmto

thedebtor

isnotareasonable

basisfordiscrim

ination

Inre

Kubeczko,2012

WL

2685115(B

ankr.D.C

olo.July6,2012)(unfairdiscrim

inationin

achapter13

planthatseparately

classifiedstudentloan

debtandproposed

topay

a48.86%

dividendon

thatclaimw

hilerem

ainingunsecured

creditorswould

bepaid

adividend

of0.27%.

Absentthe

separateclassification,allunsecured

creditorswould

receivea

dividendofapproxim

ately8.06%

.The

factthatseparateclassification

andpaym

entofthestudentloan

would

haveprevented

debtor’sdefaultonstudentloansand

theaccrualofsubstantialinterestw

asnotenoughto

justifythe

discrimination).

Inre

Knecht,410

B.R

.650(B

ankr.D.M

ont.2009)(debtorfailedto

demonstrate,under

thefour-factorW

olfftest,chapter13plan

thatproposedto

paym

orethan

$36,000to

studentloandebtand

nothingto

generalunsecuredcreditorsdid

notunfairlydiscrim

inate;debtor’ssolebasisforthe

discrimination

wasnotknow

ingifhe

would

liveorw

orklong

enoughto

repayhisstudentloan

debtbecauseofhealth

issuesbuthefailed

tolink

hishealthissuesto

hislifespan

orhisabilityto

earna

respectablew

ageafter

completion

oftheplan;debtoradm

ittedthathe

couldcarry

outtheplan

withoutthe

discrimination;there

wasno

evidencethatthe

planw

asproposedin

goodfaith;and

noevidence

thattheproposed

discrimination

wasrelated

tothe

basisorrationaleforthe

discrimination).

Discrim

inationunfair

inthe

absenceofproofthatitisnecessary

orreasonable

Inre

Thibodeau,248B

.R.699

(Bankr.D

.Mass.2000)(debtorfailed,underLesertest,to

demonstrate

thatplanto

separatelyclassify

andfully

paystudentloan

arrearages,m

aintainstudentloan

paymentsoutside

ofplanand

paya

27%dividend

onothergeneral

unsecuredclaim

s,while

devotinglessthan

thefullam

ountofdebtor’snetdisposableincom

eto

paymentsunderthe

plan,didnotunfairly

discriminate).

Inre

Gonzalez,206

B.R

.239(B

ankr.S.D.Fla.1997)(chapter13

planthatproposed

topay

studentloandebtin

fullanda

6%dividend

tounsecured

creditorscouldnotbe

confirmed

becausedebtor’soffered

noproofofthe

discrimination

being“fair”

or“necessary”).

Inre

Renteria,2012

WL

1439104(B

ankr.D.C

olo.Apr.26,2012)(below

median

income

debtors’chapter13plan

toseparately

classifystudentloansto

allowfor64%

repaymentofthose

claimsover60

month

periodversusa

1%repaym

entofallotherunsecured

claimsconstituted


undertheK

ing/Simm

onstestandM

achadofram

ework.

ThePlan

failedunderK

ing/Simm

onsbecausethe

generalunsecured

creditorswould

receivelessthan

theyw

ouldabsentthe

separateclassification,

i.e.1%versus12%

.Italso

failedunderM

achadobecause

thedebtorsdid

notproposeto

curestudentloan

arrearagesandthere

wasno

evidencethatthe

discriminatory

treatment

wasnecessary

toensure

thedebtorsw

ouldnotbe

worse

offattheend

ofthePlan).

d.A

voidingU

nfairD

iscrimination

byfiling

“Chapter

20”

An

optionforavoiding

the“unfairdiscrim

ination”argum

entwould

beforthe

debtortofirstfile

achapter7

case,obtaina

dischargeofallothergeneralunsecured

claims,and

thenfile

achapter13

todealw

iththe

non-dischargeablestudentloans.

Thisiscolloquiallyknow

nasa

“chapter20”case. 58

Inthe

secondbankruptcy,there

would

beno

otherunsecuredclaim

sagainstw

hichto

unfairlydiscrim

inate.C

onfirmation

ofthedebtor’schapter13

planin

thissituationm

aybe

subjecttogreatercourtscrutiny

astow

hethertheplan

wasfiled

ingood

faith. 59

e.PreferentialT

reatmentA

llowed

forD

ebtswith

Co-Signors

Section1322(b)(1)ofthe

Code

containstwo

distinctclauses.Thefirstclause

allowsthe

debtortodesignate

aclassofunsecured

claimsforfavorable

treatment,provided

thatthebeneficialclassification

doesnotdiscriminate

unfairlyagainstotherunsecured

claims.

Thesecond

clauseof§

1322(b)(1)createsaspecific

exceptionto

thisgeneralrule.Itstates,“how

ever,suchplan

may

treatclaimsfora

consumerdebtofthe

debtorifanindividualisliable

onsuch

consumerdebtw

iththe

debtordifferentlythan

otherunsecuredclaim

s.”C

ongressaddedthissecond

clausein

1984am

endmentsto

theC

ode.Thepurpose

oftheam

endmentw

astoprotectnon-filing

co-obligorsondebtsofthe

debtor.Otherw

isethese

co-obligorscouldface

ramped-up

collectionactions,leading

potentiallyto

theirfilingtheirow

nbankruptcy

petitions. 60

Infashioning

theam

endment,C

ongressintendedto

overruledecisionsthatw

ouldhave

preventedthe

chapter13debtorfrom

continuingto

paya

creditoronthe

jointconsumerdebtthe

amountthatcreditorw

ouldhave

continuedto

receiveabsentthe

bankruptcyfiling. 61

Certain

courtsconstruingthe

secondclause

of§1322(b)(1)have

implied

intothe

textanobligation

thatthedebtorm

ustalsoshow

alack

ofunfairdiscrimination

inthe

treatmentofthe

co-signeddebt. 62

Thereisno

basisforthisrequirement,asthe

plainlanguage

ofthesecond

clausegivesthe

debtoranunrestricted

righttoclassify

certainco-debtorclaim

sseparately. 63Thedistinction

createdby

thesecond

clausem

akeslittlesense

iftheunfairdiscrim

inationtestapplies

underthesecond

clausein

thesam

em

annerthatitdoesunderthefirst.Separate

classificationshould

beperm

ittedso

longasthe

debtisaconsum

erdebtandw

asincurredforthe

benefitofthe

58TheB

ankruptcyC

odedoesnotprohibita

debtorfromfiling

achapter13

caseafterreceiving

adischarge

inan

earlierchapter7case.

SeeJohnson

v.Hom

eB

ank,501U

.S.78(1991).

59Inre

Metz,67

B.R

.462(9th

Cir.B

.A.P.1986)(chapter20

isnotaperse

badfaith

filing).See

alsoB

raniganv.D

avis(Inre

Davis),716

F.3d331

(4thC

ir.2013).60See

Inre

Russell,503

B.R

.788,796(B

ankr.S.D.O

hio2013)(discussing

legislativehistory

ofamendm

ent).61In

reR

enteria,470B

.R.838,844-46

(B.A

.P.9thC

ir.2012);Inre

Russell,503

B.R

.788,796(B

ankr.S.D.O

hio2013).

62Seee.g.In

reLinton,2011

WL

3207366(B

ankr.E.D.V

a.July27,2011)(agreeing

with

courtsthatrequire

some

considerationofdegree

ofdiscriminatory

treatment,butfinding

100%paym

entofstudentloan

debtswhile

otherunsecuredcreditorsreceive

5%to

6%to

beacceptable).

63In

reR

ivera,490B

.R.130

(B.A

.P.1stCir.2013);

Inre

Renteria,470

B.R

.838,845-46(B

.A.P.9

thCir.2012).

debtor. 64f.G

raduatedPaym

entStructuresforStudentL

oansinC

hapter13

Plans

Anotherapproach

mightbe

toestablish

afive-yearplan,notseparately

classifythe

studentloanforthe

firstthreeyearsofthe

plan,andthen

classifyitforgreaterpaym

entduringthe

plan’sfinaltwo

years. 65Thebasisforthisapproach

istheB

ankruptcyC

odeprovision

thatrequiresdisposable

income

onlyto

bepaid

outoverthreeyears. 66

Any

amountthatcreditors

receivein

thefinaltw

oyearsw

ouldbe

abonusin

anyevent.C

ourtshavespliton

whetherthey

willallow

thisseparateclassification

ofstudentloansinyearsfourand

fiveofa

chapter13plan. 67

Asa

relatedoption,ifthe

planisvoluntarily

extended,forexample

from36

to60

months,the

plancould

provideforpreferentially

highpaym

entstothe

studentloancreditor

duringthe

first36m

onths.Any

shortfalltonon-studentloan

creditorsoccurringduring

thefirst

threeyearscould

bem

adeup

bydirecting

additionalpaymentsto

themduring

thefourth

andfifth

years. 68Thiswould

allowfora

consistentlyhigherpaym

enttothe

studentloancreditor

throughouttheentire

planperiod.

g.O

ver-Median

Income

DebtorsM

ayD

esignateA

llTheir

Discretionary

Income

forStudentL

oanPaym

ents

Them

eanstestingcalculation

canw

orkto

thebenefitofan

above-median-incom

echapter13

debtorwho

wishesto

continuem

akingregularpaym

entsona

nondischargeablestudentloan.

Where

thedebtor’s“m

onthlydisposable

income”

amountfrom

hisorherForm22C

is$0

oranegative

number,bankruptcy

courtshavegenerally

allowed

above-median

income

chapter13debtorsto

useasm

uchoftheirdiscretionary

income

astheyw

ishto

pay

64SeeIn

reSantana,480

B.R

.222(B

ankr.D.P.R

.2012)(debtor-parentwho

co-signedstudent

loanforbenefitofson

couldnotseparately

classifydebtundersecond

clauseofsection

1322(b)(1)becauseloan

notforbenefitofparent).65

Inre

Simm

ons,288B

.R.737

(Bankr.N

.D.Tex.2003)(plan

providingfor100%

repayment

ofstudentloanand

zeropercentto

generalunsecuredcreditorsm

aybe

confirmed

when

allofdebtor’sdisposable

income

paidinto

planforfirstthirty-six

monthsand

studentloancreditor

paidin

monthsforty-one

throughforty-eightofplan);In

reStrickland,181

B.R

.598(B

ankr.N

.D.A

la.1995)(holdingthatnondischargeable

studentloandebtcould

notbetreated

more

favorablythan

otherunsecuredclaim

sforfirstthirty-sixm

onthsofchapter13plan,but

remaining

twenty-fourm

onthscouldbe

devotedsolely

topaym

entofstudentloan).6611

U.S.C

.§1325(b)(1)(B

).67C

ompare

Inre

Stickland,181B

.R.598

(Bankr.N

.D.A

la.1995)(allowing

separatetreatm

entin

yearsfourandfive),and

Inre

Rudy,1993

WL

365370(B

ankr.S.D.O

hio1993)(sam

e),with

Inre

Sullivan,195B

.R.649

(Bankr.W

.D.Tex.1996)(notallow

ingseparate

classification).68See

e.g.Inre

Perrine,2001W

L34076434

(Bankr.C

.D.Ill.July

13,2001)(suggestingdebtor

couldm

inimize

disparityin

treatmentofstudentloan

andnon-studentloan

unsecuredcreditors

byextending

planterm

sixm

onthsbeyondthe

proposed36

months).

studentloancreditorsata

rategreaterthan

otherunsecuredcreditors. 69

h.StudentL

oanPaym

entsAs“SpecialC

ircumstances”

Under

theM

eansTest

Inorderto

reducecurrentm

onthlyincom

eunderthe

meanstest,an

above-median-

income

debtorwillw

anttoshow

them

aximum

allowable

expendituresandexpenses.

Studentloan

paymentsw

ouldappearto

bean

obviouschoiceto

applytow

ardthisreduction.

Unfortunately,studentloan

debtpayments,like

mostgeneralunsecured

debts,arenotallow

abledeductionsfrom

currentmonthly

income

forthem

eanstestcalculation. 70Y

et,thereisstilla

way

inw

hichthe

debtormay

usestudentloan

paymentsto

reducecurrentm

onthlyincom

eand

avoidthe

presumption

ofabuse.A

fterdeductionsforallowed

expenditures,theC

odeperm

itsthedebtorto

rebutthepresum

ptionofabuse

bydem

onstrating“specialcircum

stances”thatm

aybring

thedebtor’sdisposable

income

underthepresum

edabuse

tolerancelevelsetby

them

eanstestform

ula. 71The

Code

definesthese“specialcircum

stances”only

generally.The

circumstancesm

ust“justifyadditionalexpensesoradjustm

entsofcurrentmonthly

income

forw

hichthere

isnoreasonable

alternative.”72

Asexam

plesofacceptable“specialcircum

stances,”the

Code

mentions“a

seriousmedicalcondition

oracallororderto

activeduty

inthe

Arm

edForces.”

73

Severalcourtshavesaid

thatanobligation

topay

anondischargeable

studentloancan

bea

“specialcircumstance”

similarto

aseriousm

edicalconditionora

calltom

ilitaryservice. 74

For

69Inre

Know

les,501B

.R.409,412

(Bankr.D

.Kan.2013)(above-m

edianchapter13

debtor’sdirectpaym

entofongoingcontractualpaym

entstostudentloan

creditorusingfundsnotrequired

byC

odeto

becom

mitted

toplan

didnotconstitute


under§1322(b)(1));

Inre

King,460

B.R

.708(B

ankr.N.D

.Tex.2011)(notunfairdiscrimination

topay

studentloandirectly

tocreditorusing

income

inexcessofthe

amountm

andatedby

theprojected

disposableincom

ecalculation);

Inre

Abaunza,452

B.R

.866(B

ankr.S.D.Fla.2011)

(usingdiscretionary

income,above-m

ediandebtorm

aypay

studentloandebtin

fulloverthesixty

monthsofthe

plan,w

hileotherunsecured

creditorswillreceive

adividend

oflessthan1%

);In

reSharp,415

B.R

.803

(2009)(following

Oraw

sky,above-median-incom

echapter13

debtor’sdiscretionarypaym

entstostudentloan

creditorsnotunfairlydiscrim

inatory).Butsee

Inre

Stull,489B

.R.217

(Bankr.D

.Kan.2013)(allow

ingabove-m

edianincom

echapter13

debtortopay

studentloanin

fullwith

discretionaryincom

e,butholding§

1322(b)(10)precludespaymentofintereston

claimunderplan).7011

U.S.C

.§707(b)(2)(A

)(ii)(I)(“othernecessaryexpenses”

“shallnotincludeany

payments

fordebts”);seealso

Inre

Thompson,457

B.R

.872(B

ankr.M.D

.Fla.2011)(studentloandebt

notanallow

edpriority

expenseundersection

707(b)(2)(A)(ii),(iv),forO

fficialForm22A

).7111

U.S.C

.§707(b)(2)(B

)(i);seeN

ationalConsum

erLawC

enter,Consum

erBankruptcy

Lawand

Practice§

13.4.6.2(10

thed.2012and

Supp.).7211

U.S.C

.§707(b)(2)(B

)(i).73Id.74In

reH

owell,477

B.R

.314,316/-/17(B

ankr.W.D

.N.Y

.2012)(debtorrebuttedpresum

ptionof

abusew

henm

agnitudeofstudentloan

debtwould

allowonly

nominalpaym

entstoother

unsecuredcreditors);In

reEdw

ards,2012W

L3042233

(Bankr.D

.Ala.July

25,2012)(agreeingthatin

some

casesstudentloanpaym

entsmay

constitutespecialcircum

stances,butnotinthis

example,in

Inre

Delbecq,the

meanstestleftthe

debtorwith

$304in

disposablem

onthlyincom

e,andshe

faceda

trustee’smotion

todism

issassertingthe

presumption

ofabuse.In

response,thedebtorargued

thathermonthly

studentloanpaym

entof$350w

asa“special

circumstance”

thatrebuttedthe

presumption. 75

Ifherdisposableincom

ew

asreducedby

theam

ountofherstudentloanpaym

ents,shew

ouldhave

nodisposable

income

underthem

eanstestform

ula.The

courtagreedw

iththe

debtoranddenied

thetrustee’sm

otionto

dismiss. 76

Inholding

thattheobligation

topay

thestudentloansw

asa“specialcircum

stance”under

section707(b)(2)(B

)(i),thecourtin

Delbecq

lookedto

thelegislative

historyofthe

meanstest.

Congressintended

thatthem

eanstestbarfromchapter7

thosedebtorsw

hohad

am

eaningfulability

topay

theirdebts.A

ccordingto

thecourt,forcing

thedebtorinto

chapter13w

oulddo

nothingto

furtherthisintent.B

ecauseseparate

classificationofstudentloan

debtswasperm

ittedin

achapter13

planin

thedistrict,the

non-student-loancreditorsw

ouldreceive

nothingunder

anyplan

thedebtorw

aslikelyto

propose. 77The

studentloancreditorw

ouldreceive

alldisbursem

entsunderherplan.The

studentloandebtw

aspresumed

tobe

nondischargeable,sothe

debtorhadno

alternativebutto

payit.

Thus,thedebtordid

nothaveany

meaningfulability

torepay

hernon-student-loandebtseitherinside

oroutsideofbankruptcy.

Thisamounted

tospecialcircum

stancesthatplacedthe

debtorinclearneed

ofchapter7reliefand

requiredadjustm

entstoherincom

eand

expensesbasedupon

thestudentloan

debt.The

obligationto

make

significantstudentloanpaym

entsmay

alsobe

abasisforopposing

am

otionto

dismissa

chapter7case

underaclaim

ofgeneralabuseofchapter7

orlackofbad

faith. 78

Asim

ilarissueinvolving

studentloansandthe

debtor’sprojecteddisposable

income

hasarisen

inchapter13

cases.Ifthe

studentloanpaym

entscanbe

excludedfrom

projecteddisposable

income

asa“specialcircum

stance,”the

paymentofthe

regularmonthly

installments

onthe

long-termdebtdirectly

tothe

creditorwould

beappropriate.

Thisshouldbe

allowed,

becausethe

same

“specialcircumstances”

standardofsection

707(b)(2)(B)(i)thatreduces

currentmonthly

income

underthem

eanstestforchapter7appliesto

adjustmentsto

disposableincom

ein

chapter13.

casebecause

debtorsincurredotherhigh

unnecessaryexpenses);In

reSanders,454

B.R

.855(B

ankr.M.D

.Ala.2011)(debtorsw

ho“eitherdirectly

oronguarantorbasis”

were

responsiblefortheirson’sstudentloan

couldclaim

theexpense

asa“specialcircum

stance”undersection

707(b)(2)(B));In

reM

artin,371B

.R.347

(Bankr.C

.D.Ill.2007);In

reD

elbecq,368B

.R.754

(Bankr.S.D

.Ind.2007);Inre

Ham

an,366B

.R.307

(Bankr.D

.Del.2007)(debtor’sobligation

topay

asco-signoronson’sstudentloan

is“specialcircumstance”);In

reTem

pleton,365B

.R.

213(B

ankr.W.D

.Okla.2007);see

Anthony

P.Cali,The

“SpecialCircum

stance”ofStudent

LoanD

ebtUnderthe

BankruptcyAbuse

Preventionand

Consum

erProtectionActof2005,52

Ariz.L.R

ev.473(Sum

mer2010)(review

ingdecisionsand

policiesrelatedto

issueand

generallysupporting

treatmentofstudentloanspaym

entsas“specialcircumstance”).

75Inre

Delbecq,368

B.R

.754(B

ankr.S.D.Ind.2007).

76Id.77See

§10.9.1,supra

(discussingchapter13

planclassification

issuesrelatedto

studentloans).7811

U.S.C

.§707(b)(1)and

(3);seeIn

reThurston,2008

WL

3414138(B

ankr.N.D

.Ohio

Aug.

8,2008).

Atleastone

courthasagreedw

iththisanalysisin

thecontextofchapter13. 79

Findingthatm

onthlypaym

entsof$450tow

arda


were

“specialcircum

stances,”the

courtinIn

reK

nightheldthata

downw

ardadjustm

entofthedebtor’s

projecteddisposable

income

inthe

fullamountofhisscheduled

studentloanpaym

entswas

appropriate.The

courtfoundthatthe

debtorhadno

reasonablealternative

topaym

entofhisstudentloans.

Therew

ouldbe

adem

onstrableeconom

icunfairnessto

thedebtorifcom

pletionofa

chapter13plan

lefthimin

defaultonhisstudentloansand

subjecttogarnishm

entortaxoffsets. 80

Thiswould

beinconsistentw

iththe

intentofBA

PCPA

toencourage

debtorstocom

pletechapter13

repaymentplans.

Asan

alternativebasisforitsdecision,the

courtinIn

reK

nightfoundthatthe

debtorwasperm

ittedto

make

paymentson

thestudentloansundersection

1322(b)(5).

Some

courtshaverejected

theview

thattheobligation

topay

anondischargeable

studentloan

debtis,perse,a“specialcircum

stance”thatjustifiesadditionaldeductionsfrom

monthly

income

underthem

eanstest. 81A

perserule

thatanyspecific

debtwithin

ageneralcategory

ofexpendituresw

illalwaysqualify

forthe“specialcircum

stances”deduction

isnotatenable

position,anditisnotone

thatanycourtshave

endorsed.U

nderafairreading

ofthestatute,the

debtormustm

akesom

eparticularized

showing

that,inhisorhercase,there

isnoalternative

topaym

entofthestudentloan

debt. 82H

owever,in

rejectingdebtors’argum

entsthatstudentloanpaym

entswere

“specialcircumstances,”

some

recentdecisionsendorseda

lineofreasoning

that

79Inre

Knight,370

B.R

.429(B

ankr.N.D

.Ga.2007).

80Id.at437.See

generallyIn

reH

owell,477

B.R

.314,317(B

ankr.W.D

.N.Y

.2012)(discussing

thenegative

impactofchapter13

ondebtor’sstudentloan

debtasfactorundersection

707(b)(2)(B)(i)rebutting

claimofabuse

ofchapter7).81In

reM

artin,505B

.R.517,522

(Bankr.S.D

.Iowa

2014)(agreeingw

ithline

ofcasesthatholdthatstudentloansare

nottypicallyspecialcircum

stance);In

reB

rown,500

B.R

.255,263(B

ankr.S.D.G

a.2013)(payingstudentloan

debtnot“specialcircumstance”

unlessdebtorcanshow

incurringloansw

asdueto

jobloss,required

tom

aintainjob,orsim

ilarnecessity);In

reM

aura,491B

.R.493,512/-/13

(Bankr.E.D

.Mich.2013)(incurring

studentloandebtis

voluntary,foreseeable,andnotunusual);In

reC

ampbell,2012

WL

162287(B

ankr.E.D.K

y.Jan.18,2012)(rejecting

specialcircumstancestreatm

entwhen

debtorpresentedno

evidencebeyond

nondischargeablenature

ofstudentloandebt);In

reThom

pson,457B

.R.872

(Bankr.

M.D

.Fla.2011)(debtorsdidnotestablish

studentloanexpense

wasnecessary

andcould

notbedeferred

underlong-termpaym

entoptions);Inre

Johnson,446B

.R.921

(Bankr.E.D

.Wis.

2011)(studentloantaken

outvoluntarilyforcareerenhancem

entcanneversupport“special

circumstances”

treatment,butdebtorm

ayclassify

studentloanpaym

entsseparatelyunder

section1322(b)(5)to

maintain

payments);In

reH

armon,446

B.R

.721(B

ankr.E.D.Pa.2011)

(proceedingunderchapter13

would

notimpose

undulysevere

consequencesupondebtor);In

reC

onlee,435B

.R.490

(Bankr.N

.D.O

hio2010);In

reSiler,426

B.R

.167(B

ankr.W.D

.N.C

.2010);In

reC

arillo,421B

.R.540

(Bankr.D

.Ariz.2009);In

rePageau,383

B.R

.221(B

ankr.D

.N.H

.2008);Inre

Lightsey,374B

.R.377,382

n.3(B

ankr.S.D.G

a.2007).82See

Inre

Cham

pagne,389B

.R.191

(Bankr.D

.Kan.2008)(em

phasizingfact-intensive

natureofspecialcircum

stancesdetermination;rejecting

viewthatnondischargeable

studentloanobligation

ispersea

specialcircumstance

butalsorejecting

viewthatstudentloan

debtburdencan

neversatisfythisrequirem

ent).

deviatesfromthe

statutorylanguage

aswidely

asdoestheview

thatstudentloansshouldalw

aysbe

treatedasa

“specialcircumstances.”

Thesecourtsadopted

theposition

that“specialcircum

stances”m

ustbethe

resultofsome

involuntaryhardship

thatbefellthedebtor. 83

According

tothese

courts,studentloansarea

routineobligation

thatindividualstakeon

voluntarily.U

nderthisview,paym

entstoward

anondischargeable

studentloanw

ouldalm

ostneverbe

aspecialcircum

stancereducing

disposableincom

eundersection

707(b)(2)(B).

Thedecisionsthatgive

substantialweightto

thereasonsw

hythe

debtorincurreda

particulardebt,suchasa

studentloan,ignorethe

relevantstatutorylanguage. 84

By

itsterms,the

statuterequiresonly

thatthedebtordem

onstratethatcertain

circumstancesare

“special”to

theextentthatthey

requireadditionalexpendituresfrom

currentmonthly

income

andthere

isnoreasonable

alternativeto

paymentforthese

expenditures.There

isnothingin

thestatutory

languagesuggesting

thatanythingaboutthe

pastcircumstancesw

hichcreated

theobligation

isrelevant.

Theonly

criterionisthatthere

presentlybe

noreasonable

alternativeto

theexpenditure. 85

Thestandard

shouldbe

metw

henthere

isnothingw

ithinthe

debtor’spowerto

reduceorotherw

iseavoid

theadditionalexpense

ofthestudentloan. 86

Them

eanstestingsystem

wasintended

tobe

aprocessto

directdebtorswith

some

trulydiscretionary

income

oranextravagantlifestyle

intosom

eform

ofdebtrepayment.

Thelack

ofalternativesforrepayment

ofstudentloandebtshould

focusonthe

debtors’resourcesandexpensesand

notonw

hetherstudentloansare

acom

mon

or“voluntary”form

ofdebt. 87

i.O

bjectionstoC

laims

Eventhough

non-dischargeable,studentloansaresubjectto

theclaim

sobjection

83Inre

Zahringer(Bankr.E.D

.Wis.M

ay30,2008);In

rePageau,383

B.R

.221(B

ankr.D.N

.H.

2008)(therem

ustbe“specialcircum

stances”in

thereasonsthatled

debtortoincureducation

loan).8411

U.S.C

.§707(b)(2)(B

).85See

Inre

Ham

an,366B

.R.307,313/-/14

(Bankr.D

.Del.2007)(rejecting

viewthat

circumstancesm

ustresultfromeventsoutside

debtor’scontrol).86In

reH

amm

ock,436B

.R.343

(Bankr.E.D

.N.C

.2010)(needforeducation

credentialsforjobadvancem

entnotsufficienttoshow

“specialcircumstances”

andlack

ofreasonablealternatives);

Inre

Templeton,365

B.R

.213(B

ankr.W.D

.Okla.2007);see

alsoIn

reK

night,370B

R.429,

439/-/40(B

ankr.N.D

.Ga.2007)(a

“reasonablealternative”

isnottopay

am

inisculepercentage

tostudentloan

creditoralongw

ithallgeneralunsecured

creditorsinchapter13

planand

havedebtorow

em

oreon

studentloanafterbankruptcy

thanbefore).

ButseeIn

rePageau,383

B.R

.221

(Bankr.D

.N.H

.2008)(indistrictsthatallow


ofstudentloansinchapter13

plans,treatmentofstudentloan

debtinthism

annerunderaplan

isreasonablealternative

fordealingw

ithexpense,precluding

findingofspecialcircum

stancesforchapter7debtor);In

reLightsey,374

B.R

.377,382n.3

(Bankr.S.D

.Ga.2007)(sam

e).87In

reSanders,454

B.R

.855(B

ankr.M.D

.Ala.2011)(studentloan

repaymentis“special

circumstance”

rebuttingpresum

ptionofabuse;allow

ingindebtednessto

increaseunderlong-

termpaym

entprogramnota

reasonablealternative);In

reD

elbecq,368B

.R.754

(Bankr.S.D

.Ind.2007).

process. 88Forexam

ple,while

federallyguaranteed

studentloansareneverbarred

bya

statuteof

limitations,private

studentloansare,likelybased

onthe

debtor’sstateofresidence.

Partiesattem

ptingto

collectastudentloan

mustshow

thattheyare

theproperparty. 89A

dditionally,studentloansm

aybe

subjecttothe

protectionsunderotherlaws,including

theFD

CPA

,stateunfaircollection

laws,

etc.,w

hichraised

defensivelyin

objectingto

claimseven

beyondthose

lawsstatutesoflim

itations.

Proofsofclaimcan

alsobe

scrutinizedto

determine

iftheobligationsm

eetthecriteria

tobe

non-dischargeable“studentloans.”

90Theclaim

shouldevidence

eitherthattheobligations

was“an

educationalbenefitoverpaymentorloan

made,insured

orguaranteedby

agovernm

entalunit,orm

adeunderany

programfunded

inw

holeorin

partbya

governmentalunitornonprofit

institution”,“anobligation

torepay

fundsreceivedasan

educationalbenefit,scholarshipor

stipend” 91,or“qualifiededucation

loan,asdefinedin

section221(d)(1)ofthe

InternalRevenue

Code

of1986,incurredby

adebtorw

hoisan

individual.”92

8.Preferences

Garnishm

entsforstudentloanswithin

in90-daysoffiling

ofadebtor’sbankruptcy

canbe

consideredpreferentialtransfers. 93

Thereisno

exceptionforavoidance

oftransfersfornondishargeable

debts,suchasstudentloans,and,because

suchgarnishm

entsarenotvoluntary,

achapter13

debtorcanboth

recoverthegarnished

amountsand,assum

ingavailable

exemptions,

retainthose

funds. 94Any

recoveryw

ouldstillbe

non-dischargeablein

thelong

run,butthedebtorm

aybenefitm

orefrom

theim

mediate

returnofgarnished

funds.

88See

e.g.,11U

.S.C.§502(b)and

FederalRule

ofBankruptcy

Procedure3007.

Seealso,H

annv.Educ.C

reditMgm

t.Corp.(In

reH

ann),476B

.R.344

(B.A

.P.1stCir.2012)(afterthorough

reviewofclaim

objectionby

thebankruptcy

court,thebalance

onthe

studentloanclaim

was

determined

tobe

zero.)89

Seee.g.,D

udleyv.S.V

a.Univ.(In

reD

udley),502B

.R.259

(Bankr.W

.D.V

a.2013)(U

niversityw

asrequiredto

showthatitw

asentitledto

enforcethe

noteagainstthe

debtor.)90

11U

.S.C.§523(a)(8).

SeeR

umerv.A

m.Educ.Servs.(In

reR

umer),469

B.R

.553,561(B

ankr.M.D

.Pa.2012)(casesinterpreting§

523(a)(8)haveheld

thattheinitialburden

isonthe

lendertoestablish

theexistence

ofthedebtand

todem

onstratethatthe

debtisincludedin

oneofthe

fourcategoriesenumerated

in§

523(a)(8)).91

Seee.g.,Inst.of

ImaginalStudies

v.Christoff

(Inre

Christoff),510

B.R

.876,876(B

ankr.N

.D.C

al.2014)(tuitioncredits

which

achapter7

debtorreceivedfrom

aprivate

universitythat

waslicensed

underCalifornia'sPrivate

PostsecondaryEducation

Actof2009

were

dischargeablein

bankruptcyunder11

U.S.C

.S.§523(a)(8)because

theydid

notinvolvea

third-partyloan

oranexchange

offunds.)92

26U

.S.C.§

221(d)(1).93

11U

.S.C.§

541.94

11U

.S.C.§522(g),(h)and

(i).

BuchananProvisions

•The

Debtorisnotseeking

nordoesthisPlanprovide

foranydischarge,in

whole

orinpart,ofher

studentloanobligations.

•The

Debtor

shallbe

allowed

toseek

enrollment

inany

applicableincom

e-drivenrepaym

ent(“ID

R”)

planw

iththe

U.

S.D

epartment

ofEducation

and/orother

studentloan

servicers,guarantors,etc.(C

ollectivelyreferred

tohereafter

as“Ed”),w

ithoutdisqualificationdue

toher

bankruptcy.

•Ed

shallnotberequired

toallow

enrollmentin

anyID

Runlessthe

Debtorotherw

isequalifies

forsuch

plan.

•The

Debtorm

ay,ifnecessaryand

desired,seeka

consolidationofherstudentloans

byseparate

motion

andsubjectto

subsequentcourtorder.

•U

pondeterm

inationby

Edof

herqualification

forenrollm

entinan

IDR

andcalculation

ofany

paymentrequired

undersuchby

theD

ebtor,theD

ebtorshall,within

30days,notify

theC

hapter13

Trusteeof

theam

ountof

suchpaym

ent.A

tsuch

time,

theTrustee

orthe

Debtor

may,

ifnecessary,

filea

Motion

toM

odifythe

Chapter

13Plan

toallow

suchdirect

payment

ofthe

studentloan(s)and

adjustthepaym

enttoother

generalunsecuredclaim

sas

necessaryto

avoidany

unfairdiscrimination.

•The

Debtor

shallre-enroll

inthe

applicableID

Rannually

oras

otherwise

requiredand

shall,w

ithin30

daysfollow

inga

determination

ofherupdatedpaym

ent,notifythe

Chapter13

Trusteeof

suchpaym

ent.At

suchtim

e,theTrustee

orthe

Debtor

may,if

necessary,filea

Motion

toM

odifythe

Chapter

13plan

toallow

suchdirectpaym

entofthe

studentloan(s)and

adjustthepaym

enttoothergeneralunsecured

claimsasnecessary

toavoid

anyunfairdiscrim

ination.

•D

uringthe

pendencyofany

applicationby

theD

ebtortoconsolidate

herstudentloans,toenroll

inan

IDR

,directpaym

entof

herstudent

loansunder

anID

R,or

duringthe

pendencyof

anydefaultin

payments

ofthe

studentloansunder

anID

R,itshallnotbe

aviolation

ofthe

stayor

otherState

orFederal

Laws

forEd

tosend

theD

ebtornorm

alm

onthlystatem

entsregarding

payments

dueand

anyother

comm

unicationsincluding,

without

limitation,

noticesof

latepaym

entsor

delinquency.Thesecom

munications

may

expresslyinclude

telephonecalls

ande-

mails.

•In

theeventofany

directpaymentsthatare

more

than30

daysdelinquent,theD

ebtorshallnotifyher

attorney,w

how

illin

turnnotify

theC

hapter13

Trustee,and

suchparties

will

takeappropriate

actionto

rectifythe

delinquency.

•The

Debtor’s

attorneym

ayseek

additionalcom

pensationby

separateapplications

andcourt

orderforservicesprovidedin

connectionw

iththe

enrollmentand

performance

underanID

R.

CO

NT

RA

CT

FOR

AD

DIT

ION

AL

STU

DE

NT

LO

AN

ASSIST

AN

CE

PrintNam

e:

SocialSecurity#:

FSAPIN

:

ScopeofC

ontract

Thiscontractis

between

(Hereinafter

referredto

as“C

LIENT”)and

TheLaw

OfficesofJohn

T.Orcutt,P.C

.("us"or"we").

CLIEN

Thas

retainedthe

LawO

fficesofJohn

T.Orcutt,P.C

.toassistw

ithC

LIENT’S

studentloan

situationin

conjunctionw

ithC

LIENT’S

Chapter13

plan/Chapter7

case.Specifically,the

LawO

fficesofJohnT.O

rcutt,P.C.w

ill:

1.R

eviewall

documents

andhistory

ofloans

andthen

giveC

LIENT

aw

rittenreport

containingan

analysisofyoursituationw

ithavailable

options;2.

Conducta

phonecallafterC

LIENT

hasreview

edthe

analysisto

discussthe

optionsand

determine

which

optionC

LIENT

chooses;and3.

Implem

enttheoption

ofCLIEN

T’Schoice

basedupon

thisdiscussion,including

seekingallow

anceofthatoption

andpaym

entofourfeesthrough

CLIEN

T’SC

hapter13plan/in

conjunctionw

ithC

LIENT’S

Chapter7

case.

CLIEN

Tagreesto

providethe

following

documents:

1.A

signedand

notarizedFederalStudentA

idPin

Num

berAuthorization.

2.A

signedand

notarizedLim

itedStudentLoan

PowerofA

ttorney.3.

CLIEN

T’Scom

pleteFederal

StudentLoan

historyreport,w

hichcan

beobtained

fromw

ww

.NSLD

S.ed.gov4.

Any

documents,

promissory

notes,collection

lettersand

phonecall

logsof

anycom

municationsC

LIENT

hashadw

ithany

StudentLoanD

ebtcollectors.5.

An

itemized

list,along

with

statements,foreach

andevery

privatestudentloan

CLIEN

Tow

es.6.

Any

andall

otherdocum

entsC

LIENT

hasrelated

toC

LIENT’S

studentloans.

Ifa

checklistwasprovided,C

LIENT

willprovide

allrequestedinform

ation.

CLIEN

Tagrees

thattheLaw

Offices

ofJohnT.O

rcutt,P.C.is

notresponsibleforrepresenting

oradvisingC

LIENT

inotherm

attersthatarenotincluded

inthe

scopeofthiscontract.

Fee

Income

Driven

Repaym

entPlan:[Chapter13]

Thefee

forthisassistance

is$2,000.

Thisis

aflatfee,consisting

of$1,200.00forthe

initialanalysis,adviceand

implem

entationofthe

studentloan

optionand

$200.00for

eachof

thefollow

ingre-certification

duringfour

(4)years

following

thefiling

ofCLIEN

T’SC

hapter13plan.C

LIENT

acknowledges

andagrees

thatsuchservices

willnotbe

provideduntilafterthe

filingofC

LIENT’S

bankruptcy.IfCLIEN

Tchooses

notto

exerciseany

ofthe

studentloan

optionsavailable

orif

noneare

authorizedby

thebankruptcy

court,CLIEN

Tw

illnotowe

anythingforthese

services.The

amountofthis

feealso

includesconsideration

foragreeingto

bepaid

throughC

LIENT’S

Chapter13

planovera

periodoftim

e,acknowledging

thatbyproviding

servicesin

advanceofpaym

entandthe

LawO

fficesof

JohnT.O

rcutt,P.C.bears

therisk

ofdelayed

paymentor

nonpayment.A

ftercom

pletionof

CLIEN

T’SC

hapter13

plan,CLIEN

Tm

ayretain

theLaw

Offices

ofJohn

T.Orcutt,P.C

.tocontinue

toassistw

ithfurtherre-certification,atw

hichtim

ea

newcontactw

illbeentered

into.[C

hapter7]

Thefee

forthis

assistanceis

$2,000.This

isa

flatfee,consisting

ofthe

initialanalysis,advice

andim

plementation

ofthe

studentloan

option.C

LIENT

acknowledges

andagrees

thatsuchservices

willnotbe

provideduntilafterthe

dischargeofC

LIENT’S

bankruptcyand

payment

ofall

fees.IfC

LIENT

choosesnot

toexercise

anyof

thestudent

loanoptions

available,CLIEN

Tw

illnotowe

anythingforthese

services.Afterthe

initialimplem

entationof

CLIEN

T’Sstudentloan

option,CLIEN

Tm

ayretain

theLaw

Offices

ofJohnT.O

rcutt,P.C.to

continueto

assistwith

furtherre-certification,atwhich

time

anew

contactwillbe

enteredinto.

TotalPerm

anentD

isabilityor

Other

Adm

inistrativeD

ischarge:[C

hapter13]

Thefee

forthis

assistanceis

$2,000.This

isa

flatfee,

consistingof

theinitial

analysis,advice

andim

plementation

ofthe

studentloanoption

andre-certification

duringthree

(3)years

following

thefiling

ofCLIEN

T’SC

hapter13plan.

CLIEN

Tacknow

ledgesand

agreesthatsuch

servicesw

illnotbeprovided

untilafterthefiling

ofCLIEN

T’Sbankruptcy.IfC

LIENT

choosesnotto

exerciseany

ofthe

studentloanoptions

availableor

ifnone

areauthorized

bythe

bankruptcycourt,C

LIENT

willnotow

eanything

forthese

services.The

amountof

thisfee

alsoincludes

considerationforagreeing

tobe

paidthrough

CLIEN

T’SC

hapter13plan

overaperiod

oftime,

acknowledging

thatbyproviding

servicesin

advanceofpaym

entandthe

LawO

fficesofJohn

T.O

rcutt,P.C

.bears

therisk

ofdelayed

payment

ornonpaym

ent.A

ftercom

pletionof

CLIEN

T’SC

hapter13

plan,CLIEN

Tm

ayretain

theLaw

Offices

ofJohn

T.Orcutt,P.C

.,ifnecessary,

tocontinue

toassistw

ithfurtherre-certification,atw

hichtim

ea

newcontactw

illbeentered

into.Ifw

efailto

obtaineitheran

administrative

totalpermanentdisability

dischargeor

enrollment

inan

income

drivenrepaym

entplan,

youw

illnot

owe

anythingfor

thisservice.

[Chapter

7]The

feefor

thisassistance

is$2,000.

Thisis

aflat

fee,consistingof

theinitial

analysis,adviceand

implem

entationof

thestudent

loanoption.

CLIEN

Tacknow

ledgesand

agreesthatsuch

servicesw

illnotbeprovided

untilafterthedischarge

ofCLIEN

T’Sbankruptcy

andpaym

entofallfees.CLIEN

Tacknow

ledgesthatthis

feedoes

notincludecom

mencem

entofan

adversaryproceeding

inbankruptcy

toseek

dischargeof

studentloans.If

CLIEN

Tchooses

notto

exerciseany

ofthe

studentloan

optionsavailable,C

LIENT

will

notow

eanything

forthese

services.Afterthe

initialimplem

entationofC

LIENT’S

studentloanoption,C

LIENT

may

retainthe

LawO

fficesofJohnT.O

rcutt,P.C.to

continueto

assistwith

furtherre-certification,atw

hichtim

ea

newcontactw

illbeentered

into.

Cooperation

CLIEN

Tagrees

tocooperate

with

theLaw

Offices

ofJohn

T.O

rcutt,P.C

.so

thatthe

LawO

fficesof

JohnT.O

rcutt,P.C.m

aycarry

outthe

scopeof

thisC

ontract.C

LIENT

will

beresponsible

forthefollow

ing:

1.C

LIENT

muststay

intouch

with

theLaw

Offices

ofJohn

T.Orcutt,P.C

..If

CLIEN

Tm

ovesor

changestelephone

number

ore-m

ailaddress,C

LIENT

will

providethe

newinform

ationas

soonas

possible.Failureby

theC

LIENT

tokeep

theLaw

Offices

ofJohnT.O

rcutt,P.C.inform

edin

writing

ofcurrentaddress,phone

numbers

andem

ailatalltim

esw

illrelievethe

LawO

fficesofJohn

T.Orcutt,P.C

.ofanyresponsibility

causedby

suchfailure,and

attheoption

oftheLaw

Offices

ofJohnT.O

rcutt,P.C.

givethe

LawO

fficesof

JohnT.

Orcutt,

P.C.

theright

tow

ithdrawfrom

representingC

LIENT

regardingthese

studentloanoptions.

2.C

LIENT

must

providethe

LawO

fficesof

JohnT.

Orcutt,

P.C.

with

anyand

allinform

ationnecessary

toadequately

reviewC

LIENT’S

studentloan

situation,this

includescontacting

usin

atim

elym

annerfor

eachannualre-certification

ofC

LIENT’S

studentloanoptions.

3.C

LIENT

mustalw

aystellthecom

pletetruth

indiscussing

studentloans.

Confidences

TheLaw

Offices

ofJohn

T.Orcutt,P.C

.agreesto

keepC

LIENT’S

information

confidential,exceptto

theextentdisclosure

ofchangesinincom

eorstudentloan

paymentsare

requiredby

theD

epartment

ofEducation

orthe

bankruptcycourt.

CLIEN

Tagrees,

however,

thatthe

LawO

fficesof

JohnT.

Orcutt,

P.C.

may

releaselim

itedinform

ation,otherw

iseprivileged

orconfidential,

ifthe

LawO

fficesof

JohnT.

Orcutt,

P.C.

believesthat

therelease

ofthe

information

willbenefitC

LIENT.

Cancellation

Inthe

eventofcancellationofthis

contractbyC

LIENT

ordenialbythe

bankruptcycourtofthe

abovefees,the

LawO

fficesofJohnT.O

rcutt,P.C.w

illberelieved

anyresponsibility

forfurtherassistance

regardingC

LIENT’S

studentloanoptions.

TheLaw

Offices

ofJohn

T.Orcutt,P.C

.willretain

CLIEN

T’Sfile

forfive

(5)yearsfrom

thedate

ofthis

retaineragreem

entatwhich

pointitwillbe

destroyed.TheLaw

Offices

ofJohn

T.O

rcutt,P.C.reserves

therightto

storerecords

electronically.IfC

LIENT

needsa

copyof

anypartofthe

filein

thefuture

thereisa

$75charge.

Disclaim

ers

Initial

You

understandthatw

eare

providinga

uniqueservice.

You

understandthatthe

LawO

fficesof

JohnT.

Orcutt,

P.C.

cannotguarantee

thatany

studentloan

creditorwilloffer,agree

tooraccepta

planthatis

affordableordesirable

bythe

CLIEN

T,thatanyestim

atedstudentloan

repaymentplans

preparedby

theLaw

Offices

ofJohn

T.O

rcutt,P.C

.are

notguaranteed

andm

aybe

completely

erroneousor

deniedby

thecreditor,and

thatthebankruptcy

courtmay

disallowthe

proposedtreatm

entofthestudentloans.

CLIEN

Tacknow

ledgesthat

anystudent

loanoption

obtainedm

ayrequire

apaym

entofadditionalamountsto

otherallowed

unsecuredclaim

sina

Chapter13

case,with

sucham

ountstobe

determined

bythe

bankruptcycourt.

CLIEN

Tunderstands

thatCLIEN

Tcan

educatehim

selforherselfwithouthiring

anattorney

and,subjectto

therequirem

entsof

thebankruptcy

court,develop

CLIEN

T’Sow

nstrategy

form

anagingstudentloan

debt,includingnonpaym

entofstudentloans

duringthe

courseofyourC

hapter13plan,

andavoid

payingthe

LawO

fficesofJohnT.O

rcutt,P.C.any

fees.

Inthe

unlikelyeventofany

disputebetw

eenC

LIENT

andthe

LawO

fficesofJohn

T.Orcutt,P.C

.,them

attershallbesubm

ittedto

bindingarbitration,to

theextentperm

ittedby

law,w

ithfee

disputestothe

North

Carolina

Bar

andother

disputestoa

panelofthreeindependentarbitrators.

CLIEN

T’Ssignature

belowand

initialsabove

arean

acknowledgm

entthat

CLIEN

Tacknow

ledgesallofthe

terms

ofthiscontract.

Ifanypartofthis

agreementis

foundinvalid

orunenforceable,the

balanceofthe

agreementshallbe

enforceable.

Thisisnotacontractforcreditrepairordebtnegotiation.

IfC

LIENT

hasany

questionsor

concernsabout

thiscontract

oryour

expectationsof

ourservices,please

callEdward

C.B

oltzat919-286-1695

todiscussbefore

signingbelow

.

PrintNam

e:

Signature:

Date:

SocialSecurity#:

Student Loans: What are the various repayment programs and...

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