Department of Justice and Department of Education released new guidance regarding Brunner v. New York State Higher Education (Student Loan Discharge)

On November 17, 2022, the Justice Department, in consultation with the Department of Education, will review the information provided, apply the Brunner factors that courts consider relevant to the undue-hardship inquiry, and determine whether to recommend discharge or where appropriate, the Justice Department will consider supporting a partial discharge.

Present Ability to Pay – Using existing standards developed by the IRS and the information provided by the debtor, the Justice Department attorney will calculate a debtor’s expenses and compare those expenses to the debtor’s income. If a debtor’s expenses equal or exceed the debtor’s income, the Department will determine that the debtor lacks a present ability to pay.

Future Ability to Pay – The Department will then assess whether the debtor’s present inability to pay is likely to persist in the future. The Department attorney will presume a debtor’s financial circumstances are not likely to change if certain factors—such as retirement age, disability or chronic injury, protracted unemployment history, lack of degree, or extended repayment status—are present. Where such factors are not present, the Department attorney will assess the facts showing whether the debtor’s present inability to pay is likely to persist.

Good Faith Efforts – In assessing what courts call the “good faith” standard, the Department will focus on objective criteria reflecting the debtor’s reasonable efforts to earn income, manage expenses, and repay their loan. The Department attorney will consider, for example, whether the debtor contacted the Department of Education or their loan servicer regarding payment options for their loan. A debtor will not be disqualified based on past non-payment if other evidence of good faith exists. A debtor also will not be disqualified based on their not enrolling in an income driven repayment plan where the debtor was deterred from participating in such a plan or otherwise provides a reasonable explanation for nonenrollment.

Sixth Circuit issues ruling (In re Underhill - 13-4195)

On September 10, 2014 the Sixth Circuit issued a ruling clarifying what law suits may or may not become property of a bankruptcy estate. In this case the Debtors operated a business when they filed a chapter 7. Subsequent to filing the case the Debtors, as representatives of the business sued another company for tortious interference with a contract. The Debtors recovered a substantial amount of money in this law suit. A creditor of the Debtors' business sought to have the settlement funds turned over to the Chapter 7 Trustee for disbursement to the Debtors' creditors. The Sixth Circuit ruled that since the Debtors' cause of action arose after the chapter 7 was filed that the proceeds from the law suit were not property of the bankruptcy estate and thus not available for distribution to creditors by the chapter 7 trustee.

Sixth Circuit issues ruling (In Re Baud)

During March, 2011, the Sixth Circuit issued a ruling in the Baud case that requires all chapter 13 cases with above median income debtors to have a projected length of 60 months. The Court further reaffirmed that below median income debtors need only be in a case for a minimum of 36 months but may take up to 60 months to pay back certain debts. 

Sixth Circuit issues ruling (In re Shaw)

The bankruptcy amendments of 2005 (BACPA) created a class of secured claims concerning automobiles (910 claims) that the Sixth Circuit ruled were not modifiable under 1322(b)(2) even though the plain language of 1325(a) seems to indicate the bankruptcy judge has discretion to do so.  The Ninth Circuit subsequently reviewed the same issue and ruled the bankruptcy judge does have the discretion to permit modification of such automobile claims.

As of Mach 27, 2013 the Ohio legislature amended the exemptions applicable to bankruptcy law. A link to the exemptions is below. Most notably, the homestead exemption is now $132,000. This means that Debtors who own their homes free and clear or have substantial equity in their primary residence are now able to protect that equity from creditors and/or trustees. 

http://codes.ohio.gov/orc/2329.66

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