Activity 3: Bankruptcy Discharges

Student ID:      

**Instructions:** Pull a sample of at least 10 Federal Perkins borrowers
who filed for bankruptcy protection. Complete the following worksheet
for each student to ensure compliance with all applicable regulations
and requirements.

Note: All hyperlinks in this document can be accessed from the main page
of the Perkins Repayment Assessment.

+-----------------------------------------------------------------------+
| Bankruptcy Discharge                                                  |
| [**674.49**](http://frwebgate.access                                  |
| .gpo.gov/cgi-bin/get-cfr.cgi?TITLE=34&PART=674&SECTION=49&TYPE=TEXT), |
| [**DCL                                                                |
| GEN-95-40**](http://ifap.ed.gov/dpcletters/doc0339_bodyoftext.htm),   |
| Bankruptcy Laws 11 U.S.C.                                             |
| [**1307**](http://www4.law.cornell.edu/uscode/11/1307.html),          |
| [**1325**](http://www4.law.cornell.edu/uscode/11/1325.html), and      |
| under [**1328(b)**](http://www4.law.cornell.edu/uscode/11/1328.html)  |
|                                                                       |
| If the school received notice that the borrower has filed for         |
| bankruptcy protection, it immediately stopped all                     |
|                                                                       |
| collection efforts (outside the bankruptcy proceeding itself).        |
|                                                                       |
| For Chapter 12 or 13 of the Bankruptcy Code, the school also          |
| suspended collection efforts against any endorser.                    |
|                                                                       |
| The school filed a proof of claim in the bankruptcy proceeding        |
| unless, in the case of a proceeding under Chapter                     |
|                                                                       |
| 7 of the Bankruptcy Code, the notice of meeting of creditors stated   |
| the borrower had no assets.                                           |
|                                                                       |
| Responding to Complaint for Determination of Dischargeability         |
|                                                                       |
| If the borrower files an adversary proceeding to prove undue hardship |
| under **11 U.S.C.**                                                   |
| [523(a)(8)](http://www4.la                                            |
| w.cornell.edu/uscode/html/uscode11/usc_sec_11_00000523----000-.html), |
| the school                                                            |
|                                                                       |
| made a decision, on the basis of reasonably available information,    |
| whether repayment under the current                                   |
|                                                                       |
| repayment schedule or under any adjusted schedule would impose undue  |
| hardship on the borrower and his or                                   |
|                                                                       |
| her dependents.                                                       |
|                                                                       |
| If the school concluded that repayment would not impose an undue      |
| hardship, the school opposed the hardship (if                         |
|                                                                       |
| the expected costs of opposing the discharge would exceed one-third   |
| of the total amount owed on the loan                                  |
|                                                                       |
| including principal, interest, late charges, and collection costs).   |
|                                                                       |
| If the loan was in default, the school sought a judgment for the      |
| amount owed, and if necessary, the school                             |
|                                                                       |
| compromised a portion of that amount to obtain a judgment.            |
|                                                                       |
| The school could also file a complaint with the court to obtain a     |
| determination that the loan is not dischargeable                      |
|                                                                       |
| due to undue hardship and to obtain a judgment on the loan.           |
|                                                                       |
| Procedures for Responding to Proposed Chapter 13 Repayment Plan       |
|                                                                       |
| The school did not oppose the repayment plan approved by the court    |
| under Chapter 13 if the plan\                                         |
| proposed full repayment of the Perkins Loan, including all principal, |
| interest, late charges and collection\                                |
| costs on the loan.                                                    |
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Activity 3: Bankruptcy Discharges cont'd

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| Special Considerations                                                |
|                                                                       |
| If the borrower proposed to repay less than the amount owed and that  |
| the remainder be discharged, the school                               |
|                                                                       |
| determined that the borrower\'s proposed repayment plan met the       |
| requirements of [11 U.S.C.                                            |
| 1325](http://www4.law.cornell.edu/uscode/11/1325.html).               |
|                                                                       |
| The school objected to the confirmation by the court of the proposed  |
| plan if the plan did not meet the                                     |
|                                                                       |
| requirements of [11 U.S.C.                                            |
| 1325](http://www4.law.cornell.edu/uscode/11/1325.html) (unless the    |
| cost of this action exceeded one-third of the dischargeable\          |
| loan debt).                                                           |
|                                                                       |
| If the borrower proposed to repay less than the total amount owed,    |
| the school determined whether grounds                                 |
|                                                                       |
| existed under [11 U.S.C.                                              |
| 1307](http://www4.law.cornell.edu/uscode/11/1307.html) for the school |
| to move to have the Chapter 13 case either dismissed or converted     |
|                                                                       |
| to a Chapter 7 proceeding (unless the cost of this action would       |
| exceed one-third of the dischargeable loan debt).                     |
|                                                                       |
| **The school considered the following grounds for dismissal:**        |
|                                                                       |
| The borrower failed to begin payments under the plan within the       |
| required time (usually 30 days from the date the                      |
|                                                                       |
| plan is filed).                                                       |
|                                                                       |
| The borrower failed to file a proposed plan in a timely manner.       |
|                                                                       |
| The borrower failed to repay required court fees and charges.         |
|                                                                       |
| If the grounds existed for dismissal, the school moved to dismiss or  |
| convert case to Chapter 7\                                            |
| as described above.                                                   |
|                                                                       |
| After the borrower\'s proposed repayment plan was confirmed by the    |
| court, the school monitored the borrower\'s                           |
|                                                                       |
| compliance with the repayment plan.                                   |
|                                                                       |
| If the school determined from its own records or court documents that |
| the borrower either did not make the                                  |
|                                                                       |
| payments as required or has filed for hardship discharge under [11    |
| U.S.C. 1328(b)](http://www4.law.cornell.edu/uscode/11/1328.html) the  |
| school moved to dismiss or                                            |
|                                                                       |
| convert case to Chapter 7 as described above.                         |
|                                                                       |
| If the borrower did not demonstrate entitlement to a hardship         |
| discharge under [11 U.S.C.                                            |
| 1328(b)](http://www4.law.cornell.edu/uscode/11/1328.html), the school |
|                                                                       |
| opposed the hardship discharge request (unless the cost of these      |
| actions, when added to those already incurred,                        |
|                                                                       |
| exceeded one-third of the dischargeable debt).                        |
|                                                                       |
| Resuming/Terminating Billing and Collection                           |
|                                                                       |
| The school resumed billing and collection procedures after a borrower |
| has received a bankruptcy discharge                                   |
|                                                                       |
| unless the court found that repayment would impose an undue hardship. |
|                                                                       |
| If the court papers included the undue hardship clause, the school    |
| terminated all collection and took action to                          |
|                                                                       |
| write-off the loan.                                                   |
|                                                                       |
| If the school received repayment from the borrower after the loan had |
| been discharged, the school deposited the                             |
|                                                                       |
| payment into the Perkins Loan Fund.                                   |
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Did the School meet its responsibilities? Yes No