Tag Archives: Discharge

Tuition Credits are Not a Student Loan and Dischargeable When Filing Bankruptcy

By Ryan C. Wood

You have probably heard over and over that student loans are not dischargeable in bankruptcy unless you can prove that repaying the student loans constitutes an undue hardship for you. That is still the case. 11 U.S.C. 523(8) excepts from discharge (A)(i) an education 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 education benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in §221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual. This means if your student loans fall into any of the above categories the debt is not dischargeable in your bankruptcy case and you will still owe the funds after your case is closed unless you can prove undue hardship by filing an adversary proceeding.

Although the statute above may seem daunting there may be hope. In a recent case, In re: Christoff, Bankruptcy Case No. 13-10808DM, Northern District of California (2014), the court held that the debts held by Ms. Christoff were never received by her and therefore are not excepted from discharge by 11 U.S.C. §523(a)(8) and were discharged in her Chapter 7 bankruptcy case. In this case, Ms. Christoff attended the Institute of Imaginal Studies dba Meridian University (“Meridian”). She was awarded $6,000 in financial aid to pay for some of her tuition. She signed a promissory note. She did not actually receive any funds from Meridian though. Instead, what she received was a tuition credit. The terms of the note required her to pay back the funds at $350 per month after she finishes her coursework or she withdraws from Meridian along with 9% interest to be compounded monthly. She received another $5,000 in tuition credit the following year after signing a promissory note with the same terms. She withdrew from Meridian after completing all her coursework and clinical hours but before she completed her dissertation. She filed for Chapter 7 bankruptcy protection in August 2013 and Meridian filed an adversary proceeding to determine that the amount owed to Meridian was nondischargeable under 11 U.S.C. §523(a)(8) as a student loan.

The court in this case thoroughly examined student loan cases throughout the Ninth Circuit and other circuits. What is important to bankruptcy lawyers is what differentiates this current case with all other student loan cases is the fact that Ms. Christoff never received the funds from Meridian nor did Meridian receive funds from any other source. Ms. Christoff received a “credit” towards her education to be paid back at a later time. Both parties agreed that Meridian was not a governmental unit so they did not fit into §523(8)(A)(i). They also agreed that Meridian did not fit into §523(8)(B). Therefore the only avenue to except the debt from discharge is §523(8)(A)(ii). The entire case hinged on whether the funds were received as an education benefit, scholarship or stipend. The court determined that since there were no funds received in Ms. Christoff’s case, the debt did not fit into §523(8)(A)(ii) either and therefore the debt was dischargeable in her bankruptcy case.

What is interesting to note in this case as well is the fact that the court looked to one case, In re Oliver, 499 B.R. 617 (Bankr. S.D. Ind. 2013) where a university withheld a student’s transcript because she did not pay the tuition or related fees. The Oliver court indicated that to be excepted from discharge, the debt must still be a loan. Therefore if you did not borrow money to pay the tuition (i.e: you pay for it yourself without borrowing money from a governmental entity, private student loan company, from the school itself, or from any other third party) the debt does not fit into any of the above exceptions to discharge and is therefore dischargeable in a bankruptcy. This court completely agreed with the Oliver court in their analysis and conclusion. Meridian’s bankruptcy attorney appealed this case on the same day the decision came out so we may or may not have the same result later on. We will follow continue to monitor this case and will report on the outcome of the appeal.

Amended Tax Returns and Discharging Taxes in Bankruptcy

By Ryan C. Wood

In my previous blog articles I have explained that taxes are dischargeable in bankruptcy if they meet the following requirements: 1) the taxes were due more than 3 years ago, 2) filed more than 2 years ago, 3) assessed more than 240 days ago, 4) filed in good faith, and 5) is not filed fraudulently. What happens if you have to file an amended tax return?

Taxes will become a more common reason for people to file for bankruptcy protection. Bankruptcy lawyers everywhere are seeing more and more people with significant tax debts. Our taxes are not going to decrease anytime soon either.

Everyone makes mistakes sometimes. That is human. Everyone should be allowed to correct those mistakes if possible. If you amend your tax return and you end up owing more money to taxing authorities such as the Internal Revenue Service or the California’s Franchise Tax Board, how does this affect the dischargeability of the taxes owed if you hire a bankruptcy attorney and file for bankruptcy?

If you amend your tax return you may be relieved to know that the amendment of your tax return does not change the filing date of the original return. Your tax return will still be considered to have been filed the first time you filed the tax return. For example: you have filed your 2005 tax returns on April 15, 2006. The IRS contacts you in 2009 to notify you that you have made a mistake on your return and you need to amend your tax returns. You file the amended tax returns on June 15, 2009. You file for bankruptcy on July 1, 2009. The 2005 tax debt should still be dischargeable because you filed the original tax returns more than 2 years prior to the filing of your bankruptcy case.

One thing to note is that if there are additional taxes assessed due to the amended tax return, those additional taxes will be subject to the 240 day assessment rule. For example: you owed $1,000 when you filed your 2005 tax returns on April 15, 2006. When you amended your tax returns on June 15, 2009, an additional $500 was assessed on June 30, 2009. If you filed for bankruptcy on July 1, 2009, the original $1,000 tax debt would still be dischargeable. The additional $500 taxes that were assessed would not be dischargeable yet. If you filed your bankruptcy case on February 26, 2010 or later, the entire $1,500 would be dischargeable. Taxes are complicated. Bankruptcy laws are complicated.

Can My Debts Related To A Car Accident Be Discharged In Bankruptcy?

By Ryan C. Wood

The impact of a car accident may be emotionally and physically devastating. It is even more devastating when it has been determined the car accident was entirely or even partially your fault. What happens when you are underinsured or not insured at the time of the accident? The impact of such an event may cause your finances to spin out of control.

If you are financially responsible for a car accident you need to take a look into all the options that are available for you. One of the options is that you may be able to file for bankruptcy to discharge those debts depending on your circumstances. Normally your debts related to a car accident are dischargeable. This is true whether the debts are related to personal injury or property damage. There are two exceptions where the debts arising from a car accident are not dischargeable in bankruptcy. Many bankruptcy lawyers mistakenly believe that any debt incurred resulting from a car accident, whether insured or not, is not dischargeable when filing bankruptcy.

The first exception is if the accident was the result of you driving under the influence and you caused a death or personal injury to the other party or parties. Your financial obligations to pay any criminal fines, court fees, restitution, and bodily injury to the other party are not dischargeable if it is the result of a DUI. That means you would need to pay for the debts yourself. The only portion of your debts that would be dischargeable is property damage related to the DUI.

The other exception is if the accident was the result of a willful or malicious injury caused by you to another entity or to the property of another entity. An example of this could be if you deliberately ran your car into your neighbor’s fence because you hated the sight of the fence. Under this exception, both personal injury and property damage are not dischargeable in bankruptcy.

So what happens if you are financially responsible for the debts caused by a DUI or your willful or malicious injury to another person and you do not have the funds to repay the debt? Although the debts are not dischargeable in a Chapter 7 bankruptcy you can file a Chapter 13 to repay the debts in installments of up to five (5) years. If the debts cannot be repaid within the 5 years due to your financial circumstances you may always file another Chapter 13 bankruptcy to pay the remaining balance.

If you owe a debt related to a DUI or willful or malicious injury it is best to seek the advice of experienced bankruptcy attorneys. They will be able to draft a Chapter 13 plan that will help you repay the debts and hopefully you can move on with your life.

Can I Get Rid of a Judgment Lien When Filing a Chapter 7 Bankruptcy?

By Ryan C. Wood

In a Chapter 7 bankruptcy you are not be able to avoid junior mortgages or equity lines of credit (considered to be consensual liens) on your property even if your house is underwater.  Treatment of underwater liens is different in a Chapter 7 case then a Chapter 13 case.  However, the good news is that you can avoid a judgment lien in a Chapter 7, thereby removing the judgment lien from your real property.

What is the difference between a consensual lien and a judgment lien?  A consensual lien is a bargained for lien – this is normally referring to liens like your mortgages or equity line of credit.  You agreed to have a lien recorded against your property in exchange for financial benefit (money loaned to you).  A judgment lien is not consensual.  This type of lien is normally recorded against your property after your creditor obtains a judgment against you.  Thus, the rule in a Chapter 7 bankruptcy is that you can avoid a judgment lien since it was involuntarily placed on your property and you cannot avoid a consensual lien since you agreed to have it recorded against your property.  The courts do not want to interfere with any contracts that you voluntarily entered into.  You can strip underwater junior liens and equity lines of credit in a Chapter 13 bankruptcy, but not a Chapter 7 bankruptcy.

If you file a Chapter 7 bankruptcy and you have judgment liens that you would like to avoid from your property, you have authority to do so under 11 U.S.C §522.  In order to avoid the judgment lien, the lien needs to impair an exemption.  Exemptions are what protect your property that has value from becoming part of the bankruptcy estate.  So if you have a lien that combined with all the other senior liens on your property and your exemptions on the property exceed what your house is worth, you can avoid that judgment lien and avoid it from your property.  Even if your property is underwater and there is no equity to exempt you can still apply an exemption and avoid the judgment lien.  This is a jurisdictional issue that must be researched in your jurisdiction though.  The majority of the courts indicate that you can still avoid a judgment lien even if no exemptions are being impaired.  The lien only has to impair an exemption that the debtor could have claimed.  Remember, only nonconsensual liens like a judgment lien can be avoided under Chapter 7 bankruptcy, not consensual liens like mortgages.

If you have any questions regarding avoidance of judgment liens in a Chapter 7 bankruptcy or would like to speak with an experienced bankruptcy lawyer or bankruptcy attorney in Fremont, please call us today at 877-9NEW-LIFE or 877-963-9543 today for a free consultation.