Bankruptcy Law & Student Loans

1. Bankruptcy Law & Student Loans Presented By: Joseph McCandlish, Esq.

2. Introduction

3. WWR History 1930 1940 1950 1960 1970 1980 1990 2000 2011 Founded Gardner & Spilka Gardner, Spilka & Weltman Weltman, Weinberg & Associates Weltman, Weinberg & Reis Co., L.P.A. Alan Weinberg & Allen Reis Join Firm Maurice Weltman Joins Firm Robert Weltman Joins Firm Pittsburgh Philadelphia Columbus Brooklyn Ht Chicago Cleveland Cincinnati Detroit Grove City Ft. Lauderdale

4. WWR Today • 10 offices in 5 states • More than 100 attorneys and nearly 1,200 legal assistants, collectors and support staff, ranking WWR as the nation’s largest creditor’s rights law firm • Several WWR attorneys are certified as Creditors Rights Specialists by the American Board of Certification • Seamless integration allows us to deliver recovery solutions for local, regional, national and international clients

5. WWR Footprint and Network • WWR Footprint – WWR attorneys are licensed to practice in Illinois, Indiana, Kentucky, Michigan, New Jersey, Ohio, Pennsylvania and Florida –currently real estate matters only • WWR maintains a proprietary Network of National Attorneys with demonstrated proficiency in creditor representation to act as local counsel WWR’s Footprint – states where WWR provides direct legal representation

6. WWR Full-Service Capabilities Our range of services allows for the complete handling of files and matters through each step of the collection, legal and recovery process, utilizing one or more of our specialty practice groups or a combination of our services. Skip Tracing Asset Searches Pre-suit Collections Collateral Recovery Demand Letters Complex Collections Loan Workouts Demand Letters B2B Collections Pre-suit Collections Collection Litigation Arbitration/Mediation Loss Mitigation Home Preservation Foreclosures Evictions Title & REO Fannie / Freddie Consumer Commercial Reaffirmations Relief from Stay Proof of Claim Adversary Claims Compliance Litigation Consumer Leasing Federal Court Lending Issues Loan Review Intl. Collections

7. Current Bankruptcy Law and Implications on Student Loans

8. 11 U.S.C. 523(a)(8) • “A discharge does not discharge an individual debtor from any debt…unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, 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 nonprofit institution; or • An obligation to repay funds received as an educational benefit, scholarship or stipend; or

9. 11 U.S.C. 523(a)(8) • Any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986 [26 USCS § 221(d)(1)], incurred by a debtor who is an individual

10. Procedure • “[A] proceeding to determine the dischargeability of a debt” is an adversary proceeding. Federal Rule of Bkrcy Procedure 7001(6).

11. United Student Loan Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010) • Facts • Espinosa signed student loans, filed Chapter 13 bankruptcy a few years later • His plan only included the principal amount, and stated the interest would be discharged after the principal was repaid • Creditors were served with the plan, and with the deadlines for objecting • The student loan creditor filed a proof of claim, for the total amount including interest • The creditor did not file an objection to the plan • Espinosa’s plan was confirmed. No adversary proceeding had been filed, there was no finding of undue hardship. Apparently routine confirmation

12. United Student Loan Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010) • Facts (cont.) • One month later, trustee notified creditor that he would pay according to the lower plan amount, rather than the claim amount • Creditor did not respond to the trustee • Debtor made all payments • Discharge

13. United Student Loan Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010) • Procedural History • Creditor attempted collection, in accordance with traditional practice since there was no adversary proceeding, and no finding of undue hardship • Debtor filed motion to enforce the discharge order

14. United Student Loan Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010) • After motions, appeals, etc… the law now is a little clearer • The creditor must file an objection to an improper plan • A confirmation order is a judgment. If it is appealed or challenged, there are deadlines and procedures for doing so • In Chapter 13 cases, the creditors must read the plan and properly object, timely • Court did mention other remedies for a debtor inserting improper provisions into a plan

15. Undue Hardship • Many courts • “Three-part showing: (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.” Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2nd Cir. 1987)

16. Undue Hardship • Other courts look at the totality of circumstances. Example: • “(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.” Long v Educ. Credit Mgmt. Corp. 332 F. 3d 549, (8th Cir. 2003) citing Andrews v. South Dakota Loan Assistance Corp. 661 F. 2nd 702 (8th Cir. 1981); Andersen v. Nebraska Student Loan Program, Inc. 232 B.R. 127 (B.A.P. 8th Cir. 1999)

17. Undue Hardship • Recent examples: • In re Mosko v. Educational Credit Mgt. Corp. 515 F.3d 319 (4th Cir. 2008). Under Brunner test, debtors did not demonstrate a good-faith effort to obtain employment and maximize income. Mr. Mosko did not prove his medical condition precluded him from all employment. Mosko’s budget included $75 for internet, $60 for satellite television, $68 for a YMCA membership. Also, debtors had not adequately pursued loan consolidation options. This was not a good faith attempt to pay student loans, the appellate court reversed the trial court, and found the loans were not dischargeable.

18. Undue Hardship • Educational Credit Mgt. Corp. v. Jesperson 571 F.3d 775 (8th Cir. 2009) • Under a “totality of the circumstances” test, a debtor who had recently graduated from law school, and who qualified from Dept of Ed.’s 25 year Income Contingent Repayment Plan, could not discharge his student loans. The appellate court reversed the trial court which had found the loans dischargeable, as requiring him to pay would be like sentencing him “to 25 years in a debtor’s prison without walls.” 366 B.R. at 916, 918. • Fact specific, but hard burden to meet

19. Proofs of Claims • Documentation Required • If no objection to the claim, minimal documentation is required. Court not likely to intervene without objection of a party. Certain trustees will object if they see a claim as deficient. • Upon objection, courts should determine whether there is enough information on the proof of claim so interested parties can tell what it refers to by looking at it and its attachments. • Proposed law: Rule 3001(c) will take effect December 1, 2011 unless Congress passes a law to the contrary

20. Proposed Rule 3001(c): Proof of Claim

21. Supporting Information • Claim Based on a Writing. When a claim, or an interest in property of the debtor securing the claim, is based on a writing, the original or a duplicate shall be filed with the proof of claim. If the writing has been lost or destroyed, a statement of the circumstances of the loss or destruction shall be filed with the claim

22. Supporting Information • Additional Requirements in an Individual Debtor Case; Sanctions for Failure to Comply. In a case in which the debtor is an individual: • If, in addition to its principal amount, a claim includes interest, fees, expenses or other charges incurred before the petition was filed, an itemized statement of the interest, fees, expenses or charges shall be filed with the proof of claim. • If a security interest is claimed in the debtor’s property, a statement of the amount necessary to cure any default as of the date of the petition shall be filed with the proof of claim

23. Supporting Information • If a security interest is claimed in property that is the debtor’s principal residence, the attachment prescribed by the appropriate Official Form shall be filed with the proof of claim. If an escrow account has been established in connection with the claim, an escrow account statement prepared as of the date the petition was filed and in a form consistent with applicable non-bankruptcy law shall be filed with the attachment to the proof of claim.

24. Supporting Information • If the holder of a claim fails to provide any information required by this subdivision (c), the court may, after notice and hearing, take either or both of the following actions: • Preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or • Award other appropriate relief, including reasonable expenses and attorney’s fees caused by the failure • Source: http:www.uscourts.gov/uscourts/RulesAndPolicies/rules/Supreme%20Court%202011/BK_Clean_Rules.doc

25. Supporting Information • Redact personal identifying information • Rule 9037

26. Rule 9037:Privacy Protection for Filings Made with the Court

27. Redacted Filings • Unless the court orders otherwise, in an electronic or paper filing made with the court that contains an individual’s social security number, taxpayer identification number, or birth date, the name of an individual, other than the debtor, known to be and identified as a minor, or a financial account number, a party or non-party making the filing include only: • The last four digits of the social security number and taxpayer identification number • The year of the individual’s birth; • The minor’s initials; and • The last four digits of the financial account number

28. Exemptions From the Redaction Requirement • The redaction requirement does not apply to the following: • A financial account number that identifies the property allegedly subject to forfeiture in a forfeiture proceeding; • The record of an administrative or agency proceeding unless filed with a proof of claim; • The official record of a state court proceeding; • The record of a court or tribunal, if that record was not subject to the redaction requirement when originally filed; • A filing covered by subdivision (c) of this rule; and • A filing that is subject to § 110 of the Code. • Source: http://www.pacer.gov/privacy/bk.html

29. Legislation

30. Legislation • Senator Durbin’s proposal • S. 1102 Congressional Record 5/26/11 • Consequences • Loans must be made, insured, guaranteed or funded by a governmental unit

31. Legislation • Rep. Cohen’s proposal • 112th Congress 1st Session H.R. 2028 • Consequences • Loans funded by non-profit entities would remain exempt from discharge

32. Predictions • Likelihood for passage of either

33. Questions & Answers Any questions?

34. Thank you Contact Us Joseph M. McCandlish Associate, Bankruptcy Practice Group Weltman, Weinberg & Reis Co., L.P.A. (614) 857-4410 jmccandlish@weltman.com www.weltman.com wwrbankruptcy.com