How To Waive Credit Counseling Course To File Bankruptcy

By Ryan C. Wood

Since 2005 a credit counseling course from an approved provider must be completed before a bankruptcy petition is filed. For over ten years I have watched debtor after debtor representing themselves request the Court waive the credit counseling course requirement for exigent circumstances. First, the credit counseling course can cost as little as $8.75, total, or free if you qualify, and will take about two hours to complete online. So, I do not know how any human, even if bankrupt, cannot pay $8.75 or seek waiver of the fee, for the course and spend two hours answering question that have no right or wrong answers.

Second, no bankruptcy attorney that knows what they are doing will recommend seeking waiver of the credit counseling course. They will say the credit counseling course is simple, quick and nothing to get your bankruptcy case dismissed over, so just do it.

Who does recommend or provide information to seek waiver of the credit counseling course? A non-attorney or petition preparer are illegally giving out legal advice and providing forms to seek waiver of the credit counseling course. Each one I have ever read is deficient and again, I know why. The non-attorney or petition preparer do not actually want your bankruptcy case to continue and be successful. They want to charge you fees that are not legal (more than the limit of $150.00 total in California for a non-attorney petition preparer) and want your case to be dismissed quickly so it never comes up they ripped off the bankruptcy filer. So the non-attorney gets paid more than they should and you get around 14 – 20 days of relief before the case is filed for being dead on arrival….. Then hopefully you call me and I tell you the truth for free. Or hopefully you are reading this right now and do not give a single penny to a non-attorney and please call an experienced bankruptcy attorney in your jurisdictions.



See, I care about you and do not even know you. Here it is. Your circumstances are not exigent; there will be no waiver of the credit counseling course requirement. If you are reading this, you probably do not want to spend any money on a bankruptcy attorney. Let me tell you again, your circumstances are not exigent. The Court will deny your request waiver the credit counseling course requirement due to: “certification unsatisfactory under Section 109(h)(3).” I know which halfwits are out there spewing misinformation. But truth will make you less money and capitalism rules all. I just want to be equal to how the Court, chapter 7 trustees, chapter 13 trustees, their attorneys treat my clients as to money. No, no, only they can ignore the law to put your money in their pocket……. I digress but it is true.

File Certification of Exigent Circumstances Pursuant to Section 109(h)(3)

So, first off you need exigent circumstances. What are exigent circumstances? NOT MANY CIRCUMSTANCES. Just waiting to the very last minute to file the bankruptcy petition to immediately obtain the automatic stay is NOT an exigent circumstance. Even though your house is getting foreclosed on does not mean you cannot the credit counseling course. Since I am not your bankruptcy attorney though you may allege some sort of impossibility.

An exigent circumstance is something outside of your control not allowing you to timely complete the credit counseling course.

HERE IS MORE MAGIC: Now bankruptcy judges are clueless as to the credit counseling course, the costs, the time it takes to complete. They have never had to be a social worker/psychologist/ and do some attorney work for clients. What they do know is a human represented by a bankruptcy lawyer always properly completes the credit counseling course before every bankruptcy case is filed versus you filing your own case. Bankruptcy judges only see requests for waiver of the credit counseling course under Section 109 when humans represent themself. That is the common denominator and there is nothing exigent about not hiring an attorney. So, there are exigent circumstance only in cases that do not include an attorney? Hm no, no that makes no sense.

You will pay over $1,000.00 for a cellphone yet not take the time or spend between $1,000.00 and $2,000.00 to make sure your bankruptcy is done right.


OMG, why are you requesting a complete waiver of the requirement, a requirement created by Congress, signed into law by your President of the United States to seek bankruptcy protection. Do not seek complete waiver but TEMPORARY WAIVER. Why are you not being told this. Well, here is it for free. I can do this for your entire life if you let me. You tell me what you want and I will tell you what must happen for you to get want you want. The problem is you cannot do it day in and day out. I read about this human man that bought a yearly pass for an amusement park to because the yearly pass came with free lunch I believe. The pass included some food anyway and the human man ate there everyday for free for over seven years with the yearly $150.00 pass. That is the sacrifice and discipline you do not have that is necessary to get it done.

So here is the trifecta of death for your self-filed bankruptcy case.

  1. Filing of skeleton petition; no statement of social security or creditor list;
  2. Request for waiver of court filing fee and no initial payment of filing fee; and
  3. Request for waiver of credit counseling course requirement

Also, the halfwit you overpaid to give you horrible legal advice also advised you to file a skeleton bankruptcy petition. If you want some love from the bankruptcy court file a complete and accurate petition while requesting TEMPORARY waiver of the credit counseling course and you will get what you want. Skeleton petitions filed by human beings in their own behalf rarely are complete and mandatorily dismissed within 14 days of filing the incomplete skeleton petition.

Now Section 109(h)(4) Is What Gets It Done – NO HUMAN WANTS THIS THOUGH

Section 109(h)(4) does provide for waiver of the requirement to complete the credit counseling course under certain horrible circumstances. After notice and a hearing, the court may waiver the requirement due to incapacity, disability or active military duty in a combat zone. You do not want to be determined to be mentally deficient so that you cannot complete the course due to impairment. No human want this. Disability is about being so physically impaired you cannot, after reasonable effort, participate in an in person, telephone or internet briefing course.

Where Does State of California Lottery Money Go?

By Ryan C. Wood

Howdy humans.  Let us discuss the California State Lottery and answer questions like where does all the California Lottery money go?  How much revenue is there each month and how is it spent?  Who are the winners and losers regarding the California State Lottery?  Can we get rid of the California State Lottery at this point?  Can the State of California live without a lottery?  If no, what does that say?  Does playing the lottery lead to filing bankruptcy, lol?

California State Lottery gross revenue is about $550 million a month.  As a percentage of gross revenue only about $116 million goes to education on a monthly basis or 21% of the total gross revenue.  Is this what you voted for?

For 2020-2021 the State of California lottery had total revenue of approximately $7.120 billion.  The California Department of Education estimates $1.5 billion will go to education.  During the last 35 years, 1985 – 2020, only about $1.07 billion a year of State of California lottery revenue went to K-12 education.  As of 2022, that represents 0.0088% (less than a percent of the total) of the total yearly budget for the State of California for K-12.     

For perspective if your gross income is $75,000 a year; 0.0088% equals a paltry $660.00.

For perspective if your gross income is $75,000 a year; 1.24% equals a paltry $930.00.

Now education receives about $1.5 billion from the State of California lottery or 1.24% of the total California education budget. 

Gaming costs are about $575 million with pure administrative expenses such as salaries are about $215 million each year.  So approximately $800 million goes to operating expenses each year while about $1.5 billion goes to education each year. 

If the total revenue was $7.2 billion for 2020-2021 and 87% or $6.264 billion

In 2020 about 66% of gross revenue was paid in the form of prizes/awards to the public.

Who Gets the California State Lottery Money?

Prior to 2010 only 50% of the money brought in by the California State Lottery had to be returned, or redistributed, to the public in the form of winnings/prizes.  A law was passed changing the payouts to 87 (of net revenue, not gross) percent to the public in the form of prizes and contributions to education and cap of 13 percent for California Lottery operating expenses. 

Prior to 2010 the money was redistributed as follows: 50 percent to public in prizes, 34 percent to public education, and no more than 16 percent to administrative expenses. 

So here you go.  Below is how lottery revenue was distributed between 1985 and 2020.

Entity                                                                                           Amount Allocated in Millions

K-12                                                                                             $1,194,705,385

Community Colleges                                                                $218,861,585

California State University                                                      $60,423,474

University of California                                                            $42,667,362

Hastings College of the Law                                                    $144,161

Department of Education – State Special Schools               $116,496

Juvenile Justice                                                                         $49,381

Department of Developmental Services                              $41,669

Total                                                                                           $1,517,009,513

Employees and Offices of the California State Lottery

In 2020 the California Lottery Commission employed 909 humans in nine district offices and two distribution centers.     

Distribution to Education 1985 – 2020

K-12 Education received about $30 billion over 35 years.  For perspective the State of California budget for 2022 is $119 billion – $124 billion.  According to the California Department of Education the total budget for 2021-2022 for K-12 programs is $124.3 billion.  Per pupil spending is up from $16,881 in 2020-2021 to $23,089 for 2021-2022.  So let us talk about $121 billion and how much money that is and where does it go.

Does Playing California State Lottery Lead to Bankruptcy?

No, I am just joking about this.  As a bankruptcy attorney in the Bay Area I regularly encourage my bankruptcy clients to buy one ticket each week or when the jackpots get huge.  Hopefully they will crack off a piece of that cheese for me.  I cannot ethically treat humans in the requisite way our system requires to obtain/earn/steal millions of dollars.  I could never sell my services as a bankruptcy attorney at 10 times the amount other bankruptcy attorneys charge regardless of how superior the services are.  This is not true of cellphones.  Apple can markup a cellphone to $1,200.00 and we all call it capitalism versus some other manufacturers cellphone selling for $100.00.  As an attorney that would be unethical even if the client chose to pay over 10 times more.  I, like most humans, will have to have blind luck to get that amount of money and that is where the California State Lottery comes in.  Do not fool yourself.  The only way to get rich is at the expense of many other human beings one way or another.  It is to capitalize. 

What Does Bankruptcy Do To Your Life?

By Ryan C. Wood

What does bankruptcy do to your life? It helps your life and will give you your life back without the stress of not affordable monthly payments on your debts.  Bankruptcy will allow you to live in peace and harmony without the stress of not being able to eat and live.  Bankruptcy is the law, written by your Congress and signed into law and enforced by your President.   

Generally, credit card debts, medical debts, other general unsecured debts are discharged [no legal obligation to pay anymore by Federal Court order] and your life is left with expenses like rent, food, cellphone and other reasonable living expenses.  The entire point of seeking relief under the Bankruptcy Code is to improve your life and it does or no one would ever choose to file for bankruptcy protection.  What bankruptcy does to your life is making your life enjoyable again and obtain a fresh start.  This is why bankruptcy laws exist.  To help you have a better life and consequently improve society as a whole.  We need everyone happy. 

How Does Bankruptcy Give You Your Life Back?

First, the consequences of not filing for bankruptcy can be significant.  Bankruptcy gives you your life back by giving you the ability to get ahead in life again.  You will no longer be held back by debt your cannot pay back based upon your circumstances. 

Once you stop paying on time each month the phone calls and letters seeking collection start.  At some point one or more of the creditors will sue you and obtain a judgment given there is rarely a defense to simply not paying anymore.  That is a breach of the credit card contract.  Once a judgment is obtained the judgment can be enforced by garnishing your wages, levying on your bank accounts, and recording the judgment so the judgment attaches to your real property or real property you purchase later.  You just went from being able to file a more or less anonymous bankruptcy case to handle your debt problems to your employer, your bank and the county you live in finding out you stopped paying your bills and a judgment was entered against you.  Now that is a significant consequence.  Considering your credit score is already low given the missed payments and/or late payments your credit score will not go lower when filing bankruptcy.  The damage is done.  Considering very few, if any, humans will know you ever filed for bankruptcy how is filing a significant bad consequence as “they” want you to believe?  The truth is there is nothing wrong with following the law when filing for bankruptcy protection and discharging your eligible debts.

Very Few Bankruptcy Filers Ever Lose Property

This is again fake news and a myth passed on from human to human that is not a bankruptcy attorney and should not be giving out advice.  This is especially true in California given California has generous exemptions to protect or exempt your property from the bankruptcy estate.  In California the CCP 703 exemptions includes a Wild Card Exemption totaling over $30,000.00.  If your circumstances are right, yes, you can have $30,000.00 in cold hard cash and discharge all your eligible debts and keep the $30,000.00 in cold hard cash.  Under the 704 exemptions the California Homestead Exemption to protect equity in your home is up to $600,000.00 depending upon the median sale price of homes in your county in the prior calendar year. 

Bankruptcy Will Generally Not Ruin Your Credit

This is a myth like skin color matters.  These myths are passed down from generation to generation poisoning minds and limiting futures.  Skin color does not matter; money matters.  Just ask Will Smith.  See, if you have enough money, you can go around slapping anyone you like without consequence.      

Every now and then I run into a potential client that has not missed a payment yet but unfortunately knows bad things are coming.  When the bad things come, they will no longer be able to pay the credit card bills each month.  The vast majority, say 90 percent or more, already have month after month of negative history on their credit report when they seek the advice of a bankruptcy attorney.  The credit score is already as low as it will ever go.  Bankruptcy can only help that situation getting rid of all the debt so the debit to income ratio skyrockets and no more negative history is recorded in their credit report.  Thank you, bankruptcy law.

You CAN Buy A House Within A Reasonable Amount of Time After Your Bankruptcy Case

This is another myth.  Just Google it.  You become eligible for every form of mortgage loan 18 – 24 months after your bankruptcy case is over.  Bankruptcy never prevents or bars someone from buying a home.  Qualifying for the loan and coming up with a down payment are what prevent humans from purchasing homes.  Not a bankruptcy on a credit report.  That is nonsense. 

Why cure the debt cancer for ever when businesses, corporations can make billions merely treating the debt cancer?  No wonder “they” want you to believe bankruptcy is bad.  They are making money off you struggling each month and care nothing about your personal well-being. 

You Do Not Have To Immediately Dismiss A State Court Lawsuit If The Defendant Files Bankruptcy

By Ryan C. Wood

This issue comes up all the time.  What I always hope is the creditor or plaintiff just dismisses the state court lawsuit without prejudice upon the filing of the bankruptcy petition.  The automatic stay goes into effect stopping any and all collection activity including lawsuits.  It just saves time and money for all parties.  Of course it is not that simple and I will discuss this issue in more detail below.  The important part is continuing status conferences or just maintaining the status quo and not dismissing the state court lawsuit once the defendant files for bankruptcy protection is not a willful violation of the bankruptcy automatic stay.  A recent Ninth Circuit Bankruptcy Appellate Panel decision addressed this issue.  See Jerome E. Perryman v. Karen Dal Pogetto, BAP No. NC-21-1036-BFS, Bk. No. 19-10253 (9th Cir. BAP 2021)

“Continuances like these keep the matter against the debtor ‘on hold’ consistent with the stay; they do not advance the matter in the creditor’s favor.”

See In re Welsch, 602 B.R. 682, 686 (Bankr. N.D. Ill. 2019) (holding that continuances in a prepetition domestic relations proceeding did not violate the automatic stay)

See In re Cobb, 88 B.R119, 120 (Bankr. W.D. Tex. 1988) (holding that a status hearing does not violate the automatic stay because it does not move the case forward to a judicial determination).

Just Maintaining The Status Quo In The State Court Lawsuit Not Willful Violation of The Automatic Stay

I really do not see the utility in continuing to have status conferences in a state court case that is dead or soon to be dead.  Each status conference requires a pre-conference statement be filed and then only thing to be communicated is the state court lawsuit is stayed until further notice.  It would make sense to then order the plaintiff to only schedule a status conference in the event there is no longer a stay in the bankruptcy case.  For some reason this does not always happen.  The only reason I can come up with is the plaintiff’s attorney wants to incur the time and bill their client.  The thing is more often not an attorney for the plaintiff has no interest in saving time and money.  The state court attorney that filed the lawsuit just got the rug pulled out from under them.  They may very well want to continue to appear for status conferences and have to file preconference statements before every conference.  They want to bill their client for that so …….

It Does Unnecessarily Increase Expenses

It is difficult enough for most bankruptcy attorneys to get paid for their time without complications.  So anything that increases the time I have to spend to get the job done is not good.  This is one of those issues.  I quote a client a fee for their case with the hope certain things play out as I plan and the amount I quoted is an amount I can make money on.  That is the deal.  When a creditor and/or their attorney choose to not dismiss the pre-bankruptcy state court lawsuit I have to spend additional time dealing with and explaining to my client what is going on and why, why a status conference statement continues to be filed in the state court case or why there continue to be status conferences.  It is just so much simpler and cheaper for the plaintiff to dismiss the state court lawsuit without prejudice.  If the defendant bankruptcy filer does not receive a discharge in their bankruptcy case the plaintiff/creditor can file the lawsuit again.  Or even better file a notice of stay of proceedings.  In California this is judicial council form CM-180.  If a defendant/debtor has made an appearance in the state court litigation under California law the defendant/debtor has the duty to file the notice of stay of proceeding.  Plaintiffs rarely if ever file a notice of stay of proceedings in the state court case. 

So in the Chapter 7 case upon entry of the order of discharge the state court lawsuit must be timely dismissed given the underlying claim is in fact legally discharged.

In a Chapter 13 case things get more complicated given a discharge is not received until after completion of the Chapter 13 Plan.  That could be as long as five years after the case is filed.  So in theory for five years a plaintiff could request the state court keep scheduling status conferences until the Chapter 13 Plan is complete and a discharged entered.  This is a common practice for foreclosure sale dates.  Upon the filing of a bankruptcy case a pending foreclosure sale of real property is stayed or stopped. 

Chapter 7 Case Versus Chapter 13 Case

As I began to discuss above there are differences whether the bankruptcy case filed is Chapter 7 or Chapter 13.  In Chapter 7 bankruptcy the debtor will most likely receive their discharge in 3 to 4 months after the petition is filed.  So the state court case can only be an issue for this short period of time even if not dismissed.  So one status conference is held or continued while the Chapter 7 case is still pending.  No big deal and this does not substantially increase bankruptcy attorneys time and expenses.  If the state court law is not dismissed upon entry of the debtor/defendant’s discharge then at some point it has to be a willful violation of the automatic stay.  In a Chapter 13 bankruptcy filing the Chapter 13 Plan is usually either 36 months or the maximum 60 months.  There can be five years for status conferences and status conference statements to deal with?  Potentially yes when the state court lawsuit is not dismissed.  Even of the notice of stay of proceeding is filed the state court could still choose to have periodic status conferences.  The entire point is to be ready to go in state court if for some reason the Chapter 13 case is dismissed.   Some Chapter 13 cases are filed to stop foreclosures or state court lawsuits temporarily with no intent to actually confirm a Chapter 13 Plan of Reorganization.  These case usually use the minimum documents, or a skeletal petition, to get the case started.  If a skeletal petition is filed then it is unclear whether the case will continue and the petition completed.  In this case it is perfectly reasonable to not dismiss the state court lawsuit unless the petition is completed and then a Chapter 13 Plan is confirmed or approved by the Court.  In a Chapter 13 case the end of the rode for creditors should be when a Chapter 13 Plan is confirmed or approved.  After that the debtor/defendant need only complete the plan to receive their discharge so why not dismiss the state court lawsuit at this point?  Well, the debtor/defendant has not completed the Chapter 13 Plan and received their discharge.  This is the, “So you say’ in I got a chance” syndrome.   At the off chance that the Chapter 13 case is dismissed the state court lawsuit is still there to be continued.

Why Is It So Difficult To Discharge Student Loans In Bankruptcy?

By Ryan C. Wood

Our media and politicians love to discuss and complain about student loan debt.  Student loan debt should be no different, better or worse, than home mortgages.  Home mortgages and student loans both allow someone to obtain something expensive now and pay for it later over a long period of time to make it affordable.  For homes it allows people who otherwise could not purchase a home purchase a home.  Student loans likewise allow someone to obtain an expensive education now that they cannot afford.  As long as the home appreciates in value the home loan is a good deal and there is a return on the investment.  Student loans are also supposed create a return on investment.  The problem is student loans are approved with no real analysis of the likelihood of the borrower paying them back.  What is the potential return on investment?  At the moment for student loans it does not matter.  Why scrutinize the borrower’s chances of paying the student loans back if the loan is federally subsidized and almost impossible to get rid of?  Why scrutinize the institution the borrower is attending.  

Brief Summary of the Problem Discharging Student Loans

Fake news and social media warps the truth. The truth is the Bankruptcy Code permits debtors showing undue hardship to discharge student loan debt when filing for bankruptcy. The problems is showing an undue hardship is dreadfully different depending upon what circuit you live in given the circuits are divided on how to determine whether undue hardship exists. The First Circuit and Eighth Circuit use the totality of the circumstances test. Many circuits, like the Ninth Circuit, use a three-part test developed by the Second Circuit in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395, 396 (2d Cir. 1987). Then there is the application of the three-part Brunner test by circuits that apply Brunner. Application and results vary widely. According to many bankruptcy lawyers the Fifth Circuit is needlessly harsh in its application of the Brunner test rendering it virtually impossible to satisfy. This is why the Bankruptcy Code’s language providing for the discharge of student loan debt is fake news for most bankruptcy filers even though

Money Matters Given You Have to Sue the Student Loan Company to Prove Undue Hardship and Discharge Student Loans

Money matters when speaking about attempting to discharge student loans when filing for bankruptcy. A typical Chapter 7 Bankruptcy filer in the State of California is living paycheck to paycheck and has less than $10,000 in assets, not including their car or retirement account. How can a bankruptcy attorney get paid for suing the bankruptcy filers student loan company? With no guarantee of success and a client with almost no ability to pay their attorney to litigate whether their student loans are an undue hardship what happens? Lawsuits or adversary proceedings to try and discharge student loans are rare on this basis alone. In California we have Civil Code Section 1717 awarding attorneys fees and expenses to the prevailing party. What about if you lose and the student loan company is awarded their fees/expenses for the litigation? That is going to be anywhere from $15,000 – $60,000 added to whatever student loans must paid back post-discharge. The cost benefit analysis almost always on balance results in not suing the student loan company.

Income Based Repayment (IBR) and The Supreme Court of the United States

There is an appeal before the Supreme Court of the United States from the United States Court of Appeals of the Fifth Circuit; Thelma G. McCoy, Petitioner, vs. United States, Case No. 20-886. The facts of this include income based repayment and the three prong Brunner Test. Ms. McCoy’s student loan payments were set at $0.00 at the time she filed for bankruptcy and sued here student loan company due to being enrolled in an income based repayment plan. If she did not obtain a higher paying job she would not have to make a higher student loan payment in the future. Begs the question how can student loans be an undue hardship if the monthly payment is limited to $0.00 each month? If your income increases you may have to pay more than $0.00 each month. What is also missing in the fake news and social media is a discussion or analysis about all the programs in real world for those having problems paying back student loans. Depending upon the IBR program, after 25 years in the IBR program and making the required payments, the remaining principal and interest are cancelled. See Code of Federal Regulations; 34 C.F.R. 685.221(f)(2).

People Interpreting The Law Is Always The Problem

The U.S. Constitution from day one provided we are all entitled to equal protection under the law and due process.  How has that worked out?  It comes down to human interpretation.  It is almost always human interpretation of the law that is problem and not the law itself.  The argument begins at the macro level [President, Vice President, Senator, Congressman, Supreme Court] when the real issue is the interpretation of the law at the micro level [Gov. Employee, Administrative Judge, Attorney, Corporation].  Who are the one or two human beings that will make the interpretation of the law you are addressing at your level?  It is not the Supreme Court of the United States.  Not the President of the United States or any part of your elected Congress.  You need to be concerned about the decision making person that was never appointed by the President of the United States or ever elected to office.  This person was hired to do a job and their interpretation and opinion is the most important at your micro level. 

Brief History of Student Loans and Discharge When Filing Bankruptcy

The last major change to student loans and the ability to discharge student loans when filing bankruptcy was 2005.  The BAPCPA Bankruptcy A Protection Consumer Protection Act.

Section 523(a)(8) of the Bankruptcy Code provides:

(a)A discharge under section 727, 1141, 1192 [1] 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—

(A) (i)an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii)an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Debt Not Excepted From Discharge Under § 523(a)(8)(A)(ii) Because it was Not an Obligation For “Funds Received”

Prior to the Bankruptcy Consumer Protection Act of 2005, the language of Section 523(a)(8) was different. The words “funds changing hands” or “funds received” are now a separate category delinked from the phrases “educational benefit or loan.”

Except from discharge means not dischargeable or not discharged. Debts excepted from discharge and types of debts that would normally be discharge but for specific law providing certain types of debts are not discharged or excepted from discharge. Student loans are general unsecured debts and generally unsecured debts are dischargeable.

Section 523(a)(8) excepts from discharge four types of student debt: (1) 523(a)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit; or (2) made under any program fund in whole or in part by a governmental unit or nonprofit institution, or (3) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (4) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor that is an individual. Meridian concedes it is not a governmental unit and the credit is not a qualified education loan as defined by section 221(d)(1) of the Internal Revenue Code. So that leaves number (3) above. Christoff received two tuition credits totaling $11,000 and she signed a promissory note with interest of 9%. She agreed to repay the tuition credits upon graduation at $350 per month. Christoff did not receive any funds and did not complete the program and graduate.

In 2013, Christoff filed for bankruptcy protection under Chapter 7 and Meridian filed an adversary proceeding lawsuit to determine if the tuition credits are excepted from discharge under Section 523(a)(8). This case addresses the language of Section 523(a)(8)(A)(ii) which provides “an obligation to repay funds received as an educational benefit, scholarship or stipend” is excepted from discharge. Meridian argued that Christoff received a loan in the form of a tuition credit and received an education. Christoff’s bankruptcy attorney argued that she never received any funds from Meridian and Meridian did not receive any funds from a third-party financing source. Judge Montali focuses on the language “funds received” in Section 523(a)(8)(A)(ii). The Court analyzed a number of cases from other circuits and the Ninth Circuit regarding Section 523(a)(8). Again, the main distinction between the various cases and decisions is whether the debtor/student actually “received funds.”

In the Christoff case in the Northern District of California, Judge Montali ruled that because the debtor’s obligations arose from funds not received by the debtor or Meridian from any other source, the underlying debt is not covered by Section 523(a)(8)(ii) and eligible for discharge. On June 26, 2014, Meridian College appealed Judge Montali’s ruling to the Bankruptcy Appellate Panel, Case No. NC14-1336.

Hawkins v. Franchise Tax Bd. of Cal., 769 F.3d 662, 666 (9th Cir. 2014) The plain language of this prong of the statute (Section 523(a)(8)) requires that a debtor receive actual funds in order to obtain a nondischargeable educational benefit.” Cazenovia Coll. v. Renshaw (In re Renshaw), 229 B.R. 552, 555 n.5 (2d Cir. BAP 1999), aff’d, 222 F.3d 82 (2d Cir. 2000)) Again, no funds were received so Section 528(a)(8)(A)(ii) did not except from discharge the tuition credits Ms. Christoff received.

3rd Prong of Brunner Test: Good Faith Effort to Repay the Student Loans

The main issue in the case was the 3rd prong of the Bruner Test, good faith effort to repay the loans. Whether someone has made a good faith effort to repay the student loans is more complicated and involves more issues that just making a monthly payment. A thorough conversation with your bankruptcy attorney should be had regarding these issues. Good faith can be measured by student loan holder’s efforts to obtain employment, the type of employment, the level of pay of the employment. The good faith prong also involves the student loan holder expenses. Did they minimize their expenses? Are their expenses for certain things too high given their income? The good faith prong also evaluates whether the student loan holder took advantage of payment plan options of the student loan company.

It was found that Hedlund was maximizing his employment income with his current employment in Klamath Falls. Heldund had also applied to two higher paying jobs. The Court noted that Hedlund had attempted to take the bar exam unsuccessfully three times. Not that passing the bar would have increased his income. Next the Court reviewed Hedlund’s expenses and found that his clothing, recreation and miscellaneous budgets including childcare and haircuts could be reduced.

Again, the District Court reviewed the original trial case de novo and found that Hedlund had not used his best efforts to maximize his income or minimize his expenses. The District Court notably criticized Hedlund for choosing to live as a single-income family, “a lifestyle that few today an afford.” Hedlund v. Educ. Res. Inst. Inc, 468 B.R. 901, 916 (D. Or. 2012). In the end the District Court should have reviewed the good faith prong of the test for clear error. The Ninth Circuit Court of Appeals found there was not clear error in the original bankruptcy court’s judgment to partially discharge Hedlund’s student loans.