Source: http://www.unduehardship-povertyrequired.com/2016/03/early-tests-to-prove-justify-undue.html?showComment=1519490699123
Timestamp: 2020-01-26 14:20:07
Document Index: 488034860

Matched Legal Cases: ['§523', '§523', '§523', '§523', '§523', '§ 523', '§523']

Undue Hardship - Poverty Required: Early Tests to Prove (justify) Undue Hardship
Early Tests to Prove (justify) Undue Hardship
SEVERAL TESTS CREATED - YET NOT A SINGLE STANDARD
If you are one who is following this blog I want to thank you. I first began blogging nearly a year ago now. My very first attempt at publishing here was on May 19th, 2015. The subject of that first informative posting was about Undue Hardship Tests. The title I used to describe the subject in that initial blog was "Undue Hardship Tests - Objective or Subjective". If you'd like, you can read the article here: http://www.unduehardship-povertyrequired.com/2015_05_01_archive.html.
My very first article and blog attempt was borne out of frustration at a time when I was first researching how to discharge my nearly $130,000.00 student loan debt. During my search for answers, I discovered the secret to being able to get out from under the burden of that huge debt and get a "fresh start" through filing bankruptcy. The secret was proving that my circumstance was an case of undue hardship.
I passed the test - And I won a full discharge of my student loan debt!
In my continuation of my recent blogging on the subject of proving undue hardship, I want to help you with understanding the conditions that must be met to satisfy the Bankruptcy Court's standards and various tests they created in an attempt to define and litigate cases under rule 11 U.S.C. §523(a)(8).
As you may recall from my previous postings, the U.S. Congress passed legislation which added student loans to the type of debts that could not be discharged by filing bankruptcy in any U.S. Bankruptcy Court. There are several types of debts which are not allowed to be discharged via bankruptcy, and these are what are called the "exceptions to discharge" and some of these certain debts can be challenged in court under certain circumstances. It just so happens that debts incurred to finance education can be challenged. Reading the law carefully reveals one word which opens the way to allow a challenge to the "exception to discharge rule". That word is 'unless'.
The Congress left the definition of undue hardship up to the bankruptcy courts. Prior to the mid 1970’s students were able to discharge student loan debt just like credit card debt or other unsecured debt. With the influence of media hype declaring graduates were filing for bankruptcy as soon as they had a degree and even before they had jobs, became the impetuous behind the 1978 legislation to make it more difficult for students within 60 months of graduation to file for discharge of the Federally granted loans. This was the birth of the undue hardship clause being applied specifically to student debt. - See more at: http://www.unduehardship-povertyrequired.com/2015_05_01_archive.html
Several changes by Congress over the years have actually made it more difficult to get student loans discharged through bankruptcy. The perception remained that students were going to take advantage of the right to file bankruptcy and "stiff the government" and get a 'free education' at the taxpayers expense. Congress first raised the waiting period from 60 months to (7) seven years. When that change appeared to not stem the tide of filings, the Congress eliminated wait periods altogether in 1998.
The real test surrounding discharging student loans in bankruptcy fell to the definition of what Congress allowed as the "unless clause", and that definition was left for the individual courts and judges to figure out. Needless to say it created a whole new world of problems!
Here is the context under which we find the "unless" of the bankruptcy law
(8) for 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 non-profit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents.
THE EARLY TESTS - TO DEFINE UNDUE HARDSHIP
The “Johnson Test” was one of the first “Tests” used to define and grade the term undue hardship as it relates to student loan debtors. In formulating the criteria for evaluating what constituted the ability to pay in the future, the court meted out a series of scenarios and “factors” that seemed to only create other scenarios that required answers; the result was a multiple factor examination, which in the end, made test quite cumbersome and complicated and “rendering the litigation burdensome. Ibid
"The Johnson test divided its inquiry into three distinct components: a "mechanical" test, a "good-faith" test and a "policy" test.27
1. Mechanical Test. The court must ask: Will the debtor's future financial resources for the longest foreseeable period of time allow for repayment of the loan and be sufficient to support the debtor and his dependents at a subsistence or poverty level standard of living, as well as to fund repayment of the student loan? If the question is answered affirmatively, discharge of the loan must be denied. If answered negatively, then the court must apply the good-faith test.
2. Good-faith Test. Here, the court asks two questions: If the answer to the first part of the good-faith test is no, then the debtor should be discharged of the obligation to repay his student loan. However, if the answers to both parts of the good-faith test are "yes," then a presumption against discharge is established—which may be rebutted by a negative answer to the third and final test.
3. Policy Test. The court must ask: Do the circumstances—i.e., the amount and percentage of total indebtedness of the student loan and the employment prospects of the petitioner—indicate:If the answer to both parts of this question is a firm "no," then the debtor should be discharged from his student loan obligation. If the court answers "yes" to either part of the question, then the discharge should be denied.28
As the foregoing quotation illustrates, the Johnson test is rather complex. Nevertheless, it contains several aspects worth retaining. For example, it requires the court to look at whether the debtor's foreseeable income would allow for reasonable support and payment of the loan, and it requires the court to examine the reason for the debtor's alleged hardship (i.e., whether the debtor engaged in negligent or irresponsible fiscal decision-making). The presumption against discharge written into the second part of the test makes little sense: The entire statute creates a presumption against discharge unless the debtor can prove an undue hardship. Further, there is nothing in the text or history of §523(a)(8) that precludes a debtor from filing bankruptcy for the dominant or even sole purpose of discharging a student loan (if sufficient cause exists), and therefore this factor should not be given such great significance in any analysis. A primary problem with the Johnson test is that it is overly quantitative in its approach, relies predominantly on current financial data and does not allow the court much discretion or leeway to delve into qualitative matters that might be relevant,29 such as the debtor's past conduct, or even mental or physical problems that might have an impact on the debtor's ability to repay." Source:
http://www.abi.org/abi-journal/chaos-in-the-courts-the-meaning-of-undue-hardship-in-11-usc-523a8-and-the-argument-for
Johnson Test Found to be: "Too Complicated"
As described above the Johnson test was fraught with problems for other courts to work with. The criteria laid out within Johnson resulted in requiring the court to seek several answers from the debtor's future circumstances. As I read this, I was having a vision of a courtroom with a judge gazing into a crystal ball on top of his bench!
"In 1987, a different judge of the same court was called upon to interpret §523(a)(8) in In re Bryant.30 The Bryant court rejected the Johnson approach as too complicated. In its place, the Bryant court proposed the following:While the Bryant approach is, admittedly, less complicated than the Johnson test, and its second part allows for some judicial flexibility in the decision-making process, its first prong does not allow for much, if any, examination into why the debtor's income was near or below the poverty line. As the Third Circuit noted in rejecting the foregoing test: "The Bryant test does not adequately account for the fact that one of the most common reasons student-loan debtors find themselves in bankruptcy court is that their "subjective value judgments" are often (but not always) indicative of a spendthrift philosophy, which a bankruptcy court should be competent to consider before discharging student loans."32
Both the Johnson and Bryant tests are no longer in use in the Third Circuit, where they were established. In 1995, the Third Circuit rejected the Johnson and Bryant analyses in favor of the Brunner approach, discussed below. However, both Johnson and Bryant contribute value considerations to the dialogue concerning how §523(a)(8) should be applied: They both factor the federal poverty guidelines into their analyses, a consideration not expressly set forth in the Brunner test or the totality-of-the-circumstances test, and Johnson's inquiry into whether the debtor's budget problems were the result of negligence or irresponsibility (or even intentional, for that matter) is also useful. Whatever interpretation of §523(a)(8) the court eventually adopts as the uniform federal standard, it seems obvious that whether the repayment of the student loan over an extended period of time would force the debtor under the poverty level, for reasons beyond his or her control, should be part of the analysis. It is unlikely that Congress intended to hold student loans perpetually over the heads of the unfortunately impoverished. Source: Ibid ABI
THE BRUNNER TEST - 1995
Marie Brunner was a one of those students who the media was making a big ta-do over. Brunner filed for bankruptcy less than a year after graduating with a master's degree.
"To stop debtors from trying to prematurely cancel their debts, the case laid out a three-pronged test: Individuals must prove they made a good-faith effort to pay the loan by finding work and minimizing their expenses. Debtors must also show they could not maintain a minimal standard of living based on their income and expenses if they had to repay the debt.
But then, in arguably the most challenging prong, the court must consider whether that situation is likely to persist for a significant part of the repayment period — which essentially requires the judge to predict the debtor’s future, ensuring what some courts have described as a “certainty of hopelessness.” (emphasis mine) Source: http://www.nytimes.com/2015/07/18/your-money/student-loans/judges-rebuke-limits-on-wiping-out-student-loan-debt.html?_r=0
(1) the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself or her dependents if forced to repay the loans,
Today many courts continue to struggle with a test that is based on a 1987 ruling and is now nearly 30 years old. Students have much different 'circumstances' these days and those must be considered in light of the size of the debt, the age and health of the debtor and many other factors.
The other undue hardship test that remains to be discussed is what has been dubbed the "Totality of Circumstances Test" ; a test that remains in use in the 8th Circuit who expressly declined to 'adopt' the Brunner Test because the 8th Circuit felt Brunner was too restrictive. The eighth circuit's use of the TOC test in Andrews v. South Dakota was further reaffirmed by its use in Long v ECMC. Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 704 (8th Cir. 1981). Long v. Educational Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 553 (8th Cir. 2003).
"We are convinced that requiring our bankruptcy courts to adhere to the strict parameters of a particular test would diminish the inherent discretion contained in § 523(a)(8)(B). Therefore, we continue-as we first did in Andrews-to embrace a totality-of-the circumstances approach to the “undue hardship” inquiry. We believe that fairness and equity require each undue hardship case to be examined on the unique facts and circumstances that surround the particular bankruptcy." Source: http://sbli-inc.org/archive/2007/documents/N%20-%20Mahoney%20523%20Discharge%20-%20REVISED.pdf
The Totality of Circumstances also contains three (3) "prongs" which are looked at to determine undue hardship:
"In evaluating the totality-of-the-circumstances, our bankruptcy reviewing courts should consider: (1) the debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor’s and her dependent’s reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding each particular bankruptcy case. Simply put, if the debtors’ reasonable future financial resources will sufficiently cover 13 payment of the student loan debt-while still allowing for a minimal standard of living-then the debt should not be discharged." (emphasis mine) Ibid SBLI-INC
In the July 7th, 2015 Policy Directive, the Department of Education listed a chart of the Circuit Court's Application of 11 U.S.C. §523(a)(8) and list the First Circuit's testing model as "Unknown". And they quoted the First Circuit's ruling: In re Nash, 446 F.3d 188,190 (1st Cir. 2006) (refusing to adopt definitively either the Brunner or the totality of circumstances test)
Source: https://www.ifap.ed.gov/dpcletters/attachments/GEN1513.pdf
So There You Have It - The Testing Requirements!
In spite of the conundrum, I will give you a huge secret - You can win (I did) if you meet the criteria and if you file an Adversary Proceeding as part of your Chapter 7 Bankruptcy.
I used and followed the teacher's syllabus (DOE Directive), studied hard, did long days and nights of research, took good notes, drafted and completed a "Plan B Paper" (my AP Complaint) of 56 pages, with a word count of 1,7512 words!
Until next time.... Please feel free to comment, I welcome any and all comments, and be sure and follow me using the email tab. Thanks again! Richard Precht, author
Posted by Richard Precht at 4:59 PM
Unknown March 30, 2016 at 5:04 PM
Hi Richard! I am so thankful to have stumbled onto your blog. Congratulations for winning your case against the DOE. You have no idea how much hope you have given me. If you are curious about my story and experiences with my student loans you can read this article: http://www.huffingtonpost.com/davidhalperin/student-debt-strike-read_b_7006926.html
I will continue to follow your blog and learn everything I can from you and how you defeated the DOE. You are my hero and I pray that I will be able to follow in your footsteps and have my day in the bankruptcy court. Thank you for creating this blog and I look forward to your next post.
Richard Precht March 30, 2016 at 8:32 PM
Tiffany I am glad you are here. I read the article you wrote and congratulate YOU on taking a bold stand against the corruption waged against you and the other students who attended ATI. Your possibly in a unique situation for joining in a class action lawsuit and getting with other students affected by the deceptions of ATI and having the DOE forgive your student loans. I pray that is the case. IF you are in a tight financial corner and the possibility of a class action suit is not likely, then perhaps you can file for an undue hardship discharge in bankruptcy court. I will be happy to encourage you and also lend you some advise. I am in the process of writing a book entitled "911 for Student Loans - Real help for dealing with your student loans! Answers about Loan Forgiveness, Repayment Plans, and Bankruptcy of Your Student Loan Debt. Unfortunately the book is still in the works. But as I said, I will be here and I can offer other supportive links... just ask the specifics and I will try and steer you to the right information. God Bless! Richard
Oh I did't mean to mislead you. I am not the author of the article. The writer is David Halperin and he asked me if he could quote some of my email correspondences with him and I of course said yes. I am not part of a class action lawsuit and I have very little faith in the DOE to do the right thing by forgiving the student loans of the victims of the predatory for-profit schools. In August 2013, the Department of Justice settled a False Claims Act against ATI by giving them a slap on the wrist and forcing them to close the school. This was not as big a news story as the whole Corinthian fiasco but the students struggling to find jobs and pay their student loans were still swept under the rug and forgotten about. I am very interested in filing bankruptcy and proving undue hardship in my case. Reading your blog posts has given me quite a bit of homework to get started on but I am sure I will have many questions for you along the way. I just hope I don't bug you too much. I am looking forward to reading your book when you get done with it. I pray that God continues to bless you and I am thankful that He has caused our paths to cross. I believe that God works all things together for the good of those who love Him. Thank you for everything! Tiffany
Richard Precht March 31, 2016 at 12:17 AM
Tiffany, you did not mislead me. I was the one who stated that incorrectly. I have added Mr. Halperin to my list of those I follow as I see he has a lot of articles on the subject of student loans. I encourage you to also check out two of my friends blog sites. That being Richard Fossey who writes www.condemnedtodebt.org and Steve Rhode who has a web site https://getoutofdebt.org. Both of these fine men have written about my case and they provide helpful articles and information on the student loan crisis and debt in general. Your more than welcome to reach out to me, I am glad to help in anyway. Richard.
Robin October 28, 2017 at 11:14 AM
Can you provide your case number so we can review your AP docket? Thank you!!!
Shadows January 19, 2018 at 7:13 PM
I'm 45, female, live in a boarding home, make 10 an hour. In 2010 I decided to grt out of min wage and get my degree finally. I don't drive so I opted for online.
With devry.
I hear the readers sighs. If only I knew then......
I was 70% through, straight A's with one B, the entire time attending. I got a call one day in 2012,anf my world shattered. My loans ran dry and no degree for me. I had to stop attending.
I left school with 57k in debt and now it's at 62k,growing yearly. I "pay" zero a month since leaving in 2012, because I make too little.
Nelnet has me show my income yearly and I always get the zero a month.
Would that deny me the "made a good faith effort to pay"?
Richard Precht January 21, 2018 at 12:53 AM
I am so sorry to hear of your situation... I am glad you found my Blog Site. As you can surmise I have not written for a while. Things in my life have gotten better since I won my student loan discharge, but in other ways my situation within my family relationships have been a cause for some low times... Thus I have not been into writing like I was.
As for your question, I would like to ask if you have made any attempt (or any loan payments at all) to your lenders? There are some cases won where there were ZERO dollars paid on the loan... but they are rare. I need more information.
I would be willing and available to talk on the phone if you wish.
Shadows January 21, 2018 at 3:57 AM
I've paid nothing toward it. I can't afford much, and, though there's one loan for 11 dollars and a few for 2k, the rest are huge. I fear if I pay even 11 dollars or save and pay off a 2k one, they'll think I can pay anything and take away my ibr. I make 10 an hour. Loans just aren't possible at all.
Sarah February 5, 2018 at 1:09 PM
Thank you for posting this article. I'm curious too about a similar situation to Shadow's story. My federal loans have been in forbearance for several years or in-school deferment as I went back to school but I did make payments on them early on. I have also made payments regularly on my private loans. I recently suffered a stroke. I have been working multiple part time jobs and trying to build my own business. My income has been very low. Up until my stroke I had been helping a family member financially with health problems and now I am unsure if I will be able to keep the work schedule that I maintained before. I'm sure that with the IBR I would get $0 but I know years from now there would be the huge tax bill and I still have private loans. Would there be any hope with bankruptcy?
Richard Precht February 5, 2018 at 3:47 PM
Thank you for your inquiry. I am very sorry to hear about your health situation. I offer my prayers for you to recover from this condition. As for your loan situation, I would like to suggest you give me a call so we can discuss your case and I can better understand how best to describe your options. Please email me at son.follower@yahoo.com to send me a phone number. Thank you. I look forward to talking to you soon. Richard
Sarah Merchant February 24, 2018 at 11:44 AM
Thank you for your prayers Richard. I tried sending you an email a few days ago but not sure if it went through.
Richard Precht February 24, 2018 at 3:18 PM
I sent you an email today!
April May 8, 2018 at 11:12 PM
Hello Richard. My name is April, and i think your wisdom may help me. I have a massive amount of student loan debt i incured trying to save my children from poverty i grew up in. All i ever wanted to do was give them a better life, and now everything is worse. I need somw guidance desperately. My loans currently are consolidated and require $0 monthly payment because my income is that low. I fear the day i ever have to start makimg real payments. I had to fight my whole life for everything and i can't catch a break. Any guidance you can offer will be appreciated.
Richard Precht May 9, 2018 at 12:26 AM
I sent you an email. I hope you got it.
Richard Precht May 9, 2018 at 12:06 PM
APRIL, I TRIED TO REPLY THEN REALIZED THAT IT MAY NOT REACH YOU? Please send me a direct email at son.follower1@gmail.com and I will resend the answer to your post above. It was a very long answer so I did not have room to post it here.
WHAT EVERY LAW STUDENT SHOULD KNOW UPON GRADUATION...
TRUMP SPEAKS OUT ON STUDENT LOAN CRISIS - AND HE I...
UNDUE HARDSHIP TEST PASSED WITH FLYING COLORS - ST...