K. Personal Bankruptcy

Bankruptcy in the United States is a matter placed under federal jurisdiction by the United States Constitution (in Article 1, Section 8, Clause 4), which allows Congress to enact “uniform laws on the subject of bankruptcies throughout the United States”.  The Congress has enacted statutes governing bankruptcy, primarily in the form of the Bankruptcy Code, located at Title 11 of the United States Code.  Federal law is amplified by state law in some places where Federal law fails to speak or expressly defers to state law.

While bankruptcy cases are always filed in United States Bankruptcy Court (an adjunct to the U.S.  District Courts), bankruptcy cases, particularly with respect to the validity of claims and exemptions, are often dependent upon State law.  State law therefore plays a major role in many bankruptcy cases, and it is often not possible to generalise bankruptcy law across state lines.

Chapters

There are six types of bankruptcy under the Bankruptcy Code, located at Title 11 of the United States Code:

  • Chapter 7: basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available
  • Chapter 9: municipal bankruptcy; a federal mechanism for the resolution of municipal debts
  • Chapter 11: rehabilitation or reorganisation, used primarily by business debtors, but sometimes by individuals with substantial debts and assets; known as corporate bankruptcy, it is a form of corporate financial reorganisation which typically allows companies to continue to function while they follow debt repayment plans
  • Chapter 12: rehabilitation for family farmers and fishermen;
  • Chapter 13: rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy
  • Chapter 15: ancillary and other international cases; provides a mechanism for dealing with bankruptcy debtors and helps foreign debtors to clear debts.

The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13.  As much as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases.  Corporations and other business forms file under Chapters 7 or 11.

In Chapter 7, a debtor surrenders his or her non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor’s unsecured creditors.  In exchange, the debtor is entitled to a discharge of some debt; however, the debtor will not be granted a discharge if he or she is guilty of certain types of inappropriate behaviour (e.g.  concealing records relating to financial condition) and certain debts (e.g. spousal and child support, most student loans),[19] some taxes[20] will not be discharged even though the debtor is generally discharged from his or her debt.  Many individuals in financial distress own only exempt property (e.g.  clothes, household goods, an older car) and will not have to surrender any property to the trustee.  The amount of property that a debtor may exempt varies from state to state.  Chapter 7 relief is available only once in any eight-year period.  Generally, the rights of secured creditors to their collateral continues even though their debt is discharged.  For example, absent some arrangement by a debtor to surrender a car or “reaffirm” a debt, the creditor with a security interest in the debtor’s car may repossess the car even if the debt to the creditor is discharged.

The 2005 amendments to the Bankruptcy Code introduced the “means test” for eligibility for chapter 7.  An individual who fails the means test will have his or her chapter 7 case dismissed or may have to convert his or her case to a case under chapter 13.

Generally, a trustee will sell most of the debtor’s assets to pay off creditors.  However, certain assets of the debtor are protected to some extent. For example, Social Security payments, unemployment compensation, and limited values of equity in a home, car, or truck, household goods and appliances, trade tools, and books are protected.  However, these exemptions vary from state to state.

In Chapter 13, the debtor retains ownership and possession of all of his or her assets, but must devote some portion of his or her future income to repaying creditors, generally over a period of three to five years.  The amount of payment and the period of the repayment plan depend upon a variety of factors, including the value of the debtor’s property and the amount of a debtor’s income and expenses. Secured creditors may be entitled to greater payment than unsecured creditors.

Relief under Chapter 13 is available only to individuals with regular income whose debts do not exceed prescribed limits.  If you are an individual or a sole proprietor, you are allowed to file for a Chapter 13 bankruptcy to repay all or part of your debts.  Under this chapter, you can propose a repayment plan in which to pay your creditors over three to five years. If your monthly income is less than the state’s median income, your plan will be for three years unless the court finds “just cause” to extend the plan for a longer period.  If your monthly income is greater than your state’s median income, the plan must generally be for five years. A plan cannot exceed the five-year limitation.

In contrast to Chapter 7, the debtor in Chapter 13 may keep all of his or her property, whether or not exempt.  If the plan appears feasible and if the debtor complies with all the other requirements, the bankruptcy court will typically confirm the plan and the debtor and creditors will be bound by its terms.  Creditors have no say in the formulation of the plan other than to object to the plan, if appropriate, on the grounds that it does not comply with one of the Code’s statutory requirements. Generally, the payments are made to a trustee who in turn disburses the funds in accordance with the terms of the confirmed plan.

When the debtor completes payments pursuant to the terms of the plan, the court will formally grant the debtor a discharge of the debts provided for in the plan.  However, if the debtor fails to make the agreed upon payments or fails to seek or gain court approval of a modified plan, a bankruptcy court will often dismiss the case on the motion of the trustee.  Pursuant to the dismissal, creditors will typically resume pursuit of state law remedies to the extent a debt remains unpaid.

In Chapter 11, the debtor retains ownership and control of assets and is re-termed a debtor in possession (DIP).  The debtor in possession runs the day to day operations of the business while creditors and the debtor work with the Bankruptcy Court in order to negotiate and complete a plan.  Upon meeting certain requirements (e.g.  fairness among creditors, priority of certain creditors) creditors are permitted to vote on the proposed plan.  If a plan is confirmed the debtor will continue to operate and pay its debts under the terms of the confirmed plan.  If a specified majority of creditors do not vote to confirm a plan, additional requirements may be imposed by the court in order to confirm the plan.  Debtors filing for Chapter 11 protection a second time are known informally as “Chapter 22” filers.[21]

Chapter 7 and Chapter 13 are the efficient bankruptcy chapters often used by most individuals.  The chapters which almost always apply to consumer debtors are chapter 7, known as a “straight bankruptcy”, and chapter 13, which involves an affordable plan of repayment.  An important feature applicable to all types of bankruptcy filings is the automatic stay. The automatic stay means that the mere request for bankruptcy protection automatically stops and brings to a grinding halt most lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection activity.

Exemptions[edit]

A Bankruptcy Exemption defines the property a debtor may retain and preserve through bankruptcy.  Certain real and personal property can be exempted on “Schedule C”[22] of a debtors bankruptcy forms, and effectively be taken outside the debtor’s bankruptcy estate.  Bankruptcy Exemptions are available only to individuals filing bankruptcy.[23] There are two alternative systems that can be used to “exempt” property from a bankruptcy estate, Federal Exemptions[24] (available in some states but not all), and State Exemptions (which vary widely between states).

Individuals filing bankruptcy that claim exemptions must have all exemptions agreed upon by their bankruptcy judge (and/or courts) and by their creditors.  This step usually requires the help of lawyers, in which the sector of Bankruptcy Law has grown to become a large section of the law field. This sector, the combination of law and finance, has attracted a large number of students in recent years, and has been given a large undertaking for growing the law sector.

Bankruptcy Abuse Prevention and Consumer Protection Act[edit]

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, Pub.  L. No. 109-8, 119 Stat.  23 (April 20, 2005) (“BAPCPA”), substantially amended the Bankruptcy Code.  Many provisions of BAPCPA were forcefully advocated by consumer lenders and were just as forcefully opposed by many consumer advocates, bankruptcy academics, bankruptcy judges, and bankruptcy lawyers.[25] The enactment of BAPCPA followed nearly eight years of debate in Congress.  According the the book The Unwinding, Joe Biden, Chris Dodd, and Hillary Clinton helped pass this bill.[26] Most of the law’s provisions became effective on October 17, 2005.  Upon signing the bill, President Bush stated:

Under the new law, Americans who have the ability to pay will be required to pay back at least a portion of their debts.  Those who fall behind their state’s median income will not be required to pay back their debts. The new law will also make it more difficult for serial filers to abuse the most generous bankruptcy protections.  Debtors seeking to erase all debts will now have to wait eight years from their last bankruptcy before they can file again. The law will also allow us to clamp down on bankruptcy mills that make their money by advising abusers on how to game the system. [27]

It was widely claimed by advocates of BAPCPA that its passage would reduce losses to creditors such as credit card companies, and that those creditors would then pass on the savings to other borrowers in the form of lower interest rates.  These claims turned out to be false. After BAPCPA passed, although credit card company losses decreased, prices charged to customers increased, and credit card company profits soared.[28]

Among its many changes to consumer bankruptcy law, BAPCPA enacted a “means test”, which was intended to make it more difficult for a significant number of financially distressed individual debtors whose debts are primarily consumer debts to qualify for relief under Chapter 7 of the Bankruptcy Code.  The “means test” is employed in cases where an individual with primarily consumer debts has more than the average annual income for a household of equivalent size, computed over a 180 day period prior to filing. If the individual must “take” the “means test”, their average monthly income over this 180 day period is reduced by a series of allowances for living expenses and secured debt payments in a very complex calculation that may or may not accurately reflect that individual’s actual monthly budget.  If the results of the means test show no disposable income (or in some cases a very small amount) then the individual qualifies for Chapter 7 relief. If a debtor does not qualify for relief under Chapter 7 of the Bankruptcy Code, either because of the Means Test or because Chapter 7 does not provide a permanent solution to delinquent payments for secured debts, such as mortgages or vehicle loans, the debtor may still seek relief under Chapter 13 of the Code. A Chapter 13 plan often does not require repayment to general unsecured debts, such as credit cards or medical bills.

BAPCPA also requires individuals seeking bankruptcy relief to undertake credit counselling with approved counselling agencies prior to filing a bankruptcy petition and to undertake education in personal financial management from approved agencies prior to being granted a discharge of debts under either Chapter 7 or Chapter 13.  Some studies of the operation of the credit counselling requirement suggest that it provides little benefit to debtors who receive the counselling because the only realistic option for many is to seek relief under the Bankruptcy Code

Bankruptcy fraud is a white-collar crime.  While difficult to generalise across jurisdictions, common criminal acts under bankruptcy statutes typically involve concealment of assets, concealment or destruction of documents, conflicts of interest, fraudulent claims, false statements or declarations, and fee fixing or redistribution arrangements.  Falsifications on bankruptcy forms often constitute perjury.  Multiple filings are not in and of themselves criminal, but they may violate provisions of bankruptcy law.  In the U.S., bankruptcy fraud statutes are particularly focused on the mental state of particular actions.[7][8] Bankruptcy fraud is a federal crime in the United States.

Bankruptcy fraud should be distinguished from strategic bankruptcy, which is not a criminal act, but may work against the filer.

All assets must be disclosed in bankruptcy schedules whether or not the debtor believes the asset has a net value.  This is because once a bankruptcy petition is filed, it is for the creditors, not the debtor, to decide whether a particular asset has value.  The future ramifications of omitting assets from schedules can be quite serious for the offending debtor. In the United States, a closed bankruptcy may be reopened by motion of a creditor or the U.S.  trustee if a debtor attempts to later assert ownership of such an “unscheduled asset” after being discharged of all debt in the bankruptcy. The trustee may then seize the asset and liquidate it for the benefit of the (formerly discharged) creditors.  Whether or not a concealment of such an asset should also be considered for prosecution as fraud and/or perjury would then be at the discretion of the judge and/or U.S.  Trustee.

Taxes Not Discharged In Bankruptcy 

Taxes are dischargeable in bankruptcy unless they fall into one or more of the following categories of taxes that are not discharged in bankruptcy. For strategies relating to potentially non-dischargeable taxes see Bankruptcy Discharge Taxes Strategies. 

( Note: This topic does not yet include an analysis of dischargeability of taxes in Chapter 11 and Chapter 12.) 

Table of contents for this topic: 

Preliminary Matters 

Dischargeability of interest 

If a tax claim is not dischargeable then the interest associated with that claim is also not dischargeable.(1) Interest on a non-dischargeable or secured tax claim runs at the non-bankruptcy rate.(2) For the current rate see Taxes Federal Interest Rate#Past due taxes. 

Chapter 13. Interest cannot be paid in a Chapter 13 plan on an unsecured tax debt unless (a) the plan provides for full payment of general unsecured creditors(3) or (b) the claim is a secured claim.(4) The result of this general rule is that accruing interest on non-dischargeable tax debt remains due after a Chapter 13 is complete even if the underlying tax is paid in full. On the other hand, if the tax one that is dischargeable but payable in full in a 13 then the plan need not provide for interest and there will be no interest remaining after the case is complete. 

Dischargeability of penalties 

True penalties. A “non-pecuniary loss” penalty that is imposed in addition to a tax and interest is not dischargeable in a Chapter 7 if: 

  • the tax is not dischargeable or 
  • the event upon which the penalty is based occured within three years of the bankruptcy filing.(5) 

However, these penalties are dischargeable in a Chapter 13.(6) 

Alter ego penalties. A pecuniary loss “penalty” (obligating someone other than the original taxpayer) for a priority tax that would not be dischargeable under 11 USC 507(a)(8) (see the list below) is not dischargeable in Chapter 7.(7) These penalties are dischargeable in a Chapter 13;(8) however, the plan must provide for full payment of the penalty.(9) 

Dischargeability of debts incurred to pay taxes 

Debt incurred to pay non-dischargeable taxes are not dischargeable.(10) However, these debts are dischargeable in a Chapter 13.(11) 

“Return,” assessment date, due date, and filing date 

“Return” is defined by the Bankrutpcy Code. “Return,” for purposes of determining dischargeability of taxes, is defined in a hanging paragraph following 11 USC 523(a)(19). This provision became effective in 2005 and may overrule cases decided under prior law holding that a return filed after an assessment is not a “return” under the Bankruptcy Code.(12) However, “[b]ankruptcy courts dealing with [this] issue in cases filed after the enactment of BAPCPA have held that … a late filed Form 1040 would never qualify as return for purposes of section 523(a) … unless the debtor consented to and signed a return prepared by the IRS pursuant to 26 U.S.C. § 6020(a).”(13) 

State revenue laws often require a taxpayer to file a report or amended return when the taxpayer files an amendment to a federal return or the IRS assess additional taxes. So counsel should determine the status of the filing of state taxes whenever a federal return is amended or the IRS assesses an additional tax. 

Return due date. If the debtor received an extension then the return is due on the extension date.Also, if you are cutting it close, be sure to do the math: A return due otherwise due on a weekend or holiday becomes due on the following business day. 

Assessment occurs when it is final. A proposed assessment is not an assessment. If the timing is close you should order a tax transcript to determine the date the taxing authority’s records give as the final assessment date. And keep in mind that a litigated assessment is not final until after the 90 day appeal period has run following entry of the tax court judgment. 

Even if you determine the taxing authority has made a final assessment you should warn your client that there remains the possibility of an additional assessment if, for example, the client files an amended return or the taxing authority does an audit. 

Return filing date. Return filing may be calculated as of date of mailing, but only if the return is sent by the United States Postal Service.(14) 

Practice pointer. Do not rely on a statement from an IRS agent regarding the status of your client’s taxes.(15) 

Suspension of time 

507(a)(8) taxes. A paragraph hanging from 11 USC 507(a)(8)(G) extends the look back period for taxes that are not dischargeable under 11 USC 523(a)(1)(A) (incorporating 11 U.S.C. § 507(a)(8)) when: 

  • a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of 
    • a request by the debtor for a hearing (plus 90 days) or 
    • an appeal of any collection action taken or proposed against the debtor (plus 90 days) 
  • there has been a stay of proceedings in a prior bankruptcy (plus 90 days) or 
  • collection was precluded by a confirmed bankruptcy plan (plus 90 days) 

Other taxes. The provision suspending 507(a)(8) time periods during a the period a prior bankruptcy is pen ding codifies Young v. United States, 535 U.S. 43; 122 S. Ct. 1036; 152 L. Ed. 2d 79 (2002) (construing 11 U.S.C. § 507(a)(8)(A)(1)). However, that case may have independent vitality to the extent its reasoning can be extended beyond § 507(a)(8) taxes. 

Fact patterns that make any tax non-dischargeable – 523(a)(1)(B)&(C) 

No return filed – 523(a)(1)(B)(i) 

Any tax for which a return should have been filed but wasn’t is not dischargeable.(16) Such a tax is also not dischargeable in a Chapter 13.(17) 

Late return filed within two years of bankruptcy – 523(a)(1)(B)(ii) 

Any tax for which a return a late return was filed within two years of the filing of the bankruptcy case is not dischargeable.(18) Such a tax is also not dischargeable in a Chapter 13.(19) 

Fraudulent return or other willful attempt to evade – 523(a)(1)(C) 

Any tax for which a fraudulent return was filed or which the the debtor attempted to defeat or evade is not dischargeable.(20) Such a tax is also not dischargeable in a Chapter 13.(21) 

Fact patterns that make priority taxes non-dischargeable – 523(a)(1)(A) 

11 USC 523(a)(1)(A) incorporates 11 USC 507(a)(8), which accords priority status to certain “unsecured claims of governmental units” (emphasis added). 

Income or gross receipts tax – 507(a)(8)(A) 

Return last due within three years of bankruptcy 

An income tax is not dischargeable if the return was last due (after factoring in any extension period) within three years of the bankruptcy filing.(22) These taxes are dischargeable in a Chapter 13;(23) however, the plan must provide for full payment of the tax (but not post-petition interest and penalties).(24) 

Assessed within 240 days before bankruptcy 

An income or gross receipts tax is not dischargeable if the tax was assessed due within 240 days of the bankruptcy filing.(25) These taxes are dischargeable in a Chapter 13;(26) however, the plan must provide for full payment of the tax (but not post-petition interest and penalties).(27) 

11 USC 507(a)(8)(A)(ii) extends the 240-day look back period if an offer in compromise (plus 30 days) or a bankruptcy stay (plus 90 days) was pending during the 240 day period. 

Practice pointer. Before conceding this type of non-dischargeability check to be sure the assessment was made according to the applicable statutes and regulations (including any applicable statute of limitations). 

Assessable after bankruptcy 

An income or gross receipts tax is not dischargeable if the tax is assessable after the bankruptcy filing.(28) These taxes are dischargeable in a Chapter 13;(29) however, the plan must provide for full payment of the tax (but not post-petition interest and penalties).(30) 

Chapter 12 exception for capital gains 

11 USC 1222 (a)(2)(A) allows chapter 12 debtors to treat taxes incurred by selling farm assets before the filing of a bankruptcy petition as payable in less than full and dischargeable. However, there is a split in the circuits regarding whether such taxes incurred after the filing are entitled to similar treatment.(31) 

Property tax payable within one year – 507(a)(8)(B) 

A property tax is not dischargeable if the tax is payable within one year of the bankruptcy filing.(32) These taxes are dischargeable in a Chapter 13;(33) however, the plan must provide for full payment of the tax (but not post-petition interest and penalties).(34) 

Withholding and other trust taxes – 507(a)(8)(C) 

Withholding and other taxes “required to be collected or withheld” are not dischargeable.(35) Such a tax is also not dischargeable and must be paid in full in a Chapter 13.(36) 

Note that some states do not require that sales taxes be collected from customers. Sales tax obligations in such states do not fall under § 507(a)(8)(C). 

Employment tax return last due within three years – 507(a)(8)(D) 

An employment tax is not dischargeable if the return relating to that tax fell due within within three years of the bankruptcy filing.(37) These taxes are dischargeable in a Chapter 13;(38) however, the plan must provide for full payment of the tax (but not post-petition interest and penalties).(39) 

Excise tax – 507(a)(8)(E) 

Excise taxes are taxes levied on a specific good ( e.g., motor fuel tax) or activity ( e.g., wagering or highway use tax). 

Return last due within three years of bankruptcy 

An excise tax is not dischargeable if the return relating to that tax fell due within within three years of the bankruptcy filing.(40) These taxes are dischargeable in a Chapter 13;(41) however, the plan must provide for full payment of the tax.(42) 

If no return required: transaction within three years of bankruptcy 

An excise tax for which no return is required is not dischargeable if the transaction upon which the tax arose occurred within within three years of the bankruptcy filing.(43) These taxes are dischargeable in a Chapter 13;(44) however, the plan must provide for full payment of the tax (but not post-petition interest and penalties).(45) 

Customs duty – 507(a)(8)(F) 

Merchandise imported for consumption within one year of bankruptcy 

A customs duty is not dischargeable if the merchandise upon which the buty applies was imported for consumption within one year of the bankruptcy. filing.(46) These taxes are dischargeable in a Chapter 13;(47) however, the plan must provide for full payment of the tax (but not post-petition interest and penalties).(48) 

Covered by an entry liquidated or reliquidated within one year pf bankruptcy 

A customs duty is not dischargeable if the merchandise upon which the duty applies is covered by an entry liquidated or reliquidated within one year before the date of bankruptcy filing.(49) These taxes are dischargeable in a Chapter 13;(50) however, the plan must provide for full payment of the tax.(51) 

Entered for consumption within four years before and entry unliquidated at time of bankruptcy if Secretary certifies 

A customs duty is not dischargeable if (a) the merchandise upon which the duty applies entered for consumption within four years before the date of the filing of the petition, (2) the entry was unliquidated on such date, and (c) the Secretary of the Treasury certifies that the failure to liquidate the entry was due to an investigation then pending.(52) These taxes are dischargeable in a Chapter 13;(53) however, the plan must provide for full payment of the tax (but not post-petition interest and penalties).(54) 

Liens survive 

Chapter 7. A dischargeable tax claim will continue to be collectable following a Chapter 7 to the extent the claim is secured by a valid unavoidable lien.(55) 

Chapter 13. A secured tax claim must be paid in full, with interest, in a Chapter 13.(56) Interest runs at the non-bankruptcy rate.(57) For the current rate see Taxes Federal Interest Rate#Past due taxes. 

Because tax liens are so broad this requirement can create real problems in a Chapter 13 where there is substantial secured tax debt and an asset with substantial value. However, keep in mind that spendthrift assets, such as ERISA plans, are not property of the estate and, consequently, liens on such assets do not give rise to secured claims in a bankruptcy proceeding.(58) Thus, a debtor with a lien on an unmatured ERISA plan securing a dischargeable tax debt might be able to file a 13 to discharge the tax debt and thereafter wait out the lien to expire. 

Practice pointer – review claims. Taxing authorities with liens will often file claims as fully secured regardless of the actual Debtor equity. So counsel should review such claims carefully and seek an adjustment if the unsecured portion of the tax is dischargeable. 

Practice pointer – request lien releases. When the debtor has little or no equity in assets the IRS will, upon request, generally release liens securing dischargeable taxes. Similarly, counsel should verify that taxing authorities have released liens satisfied in a Chapter 11, 12, or 13 case. See 26 USC 6325(b)(2)(B) for more about IRS lien releases. 

See also 

External links 

Footnotes 

Notes 

1 : In re Larson, 862 F.2d 112 (7th Cir. 1988); see also 26 USC 6601(e)(1)(interest on a federal tax treated in the same manner as the tax). 

2 , 57 : 11 USC 511. 

3 : 11 USC 1322(b)(10). 

4 , 56 : 11 USC 1325(a)(5). 

5 : 11 USC 523(a)(7) and In re Burns, 887 F.2d 1541 (11th Cir. 1989). A Seventh Circuit decision concludes that true penalties are dischargeable only if both conditions are met. Cassidy v. IRS, 814 F.2d 477 (7th Cir. 1987). However, the Seventh Circuit later described that conclusion as dicta. In re Cassidy, 892 F.2d 637, 641 (7th Cir 1990). 

6 , 8 , 11 , 23 , 26 , 29 , 33 , 38 , 41 , 44 , 47 , 50 , 53 : See 11 USC 1328(a)(2) (not among exceptions to Chapter 13 discharge). 

7 : 11 USC 523(a)(1)(A) (incorporating 11 USC 507(a)(8)(G)). 

9 , 24 , 27 , 30 , 34 , 39 , 42 , 45 , 48 , 51 , 54 : 11 USC 1322(a)(2). 

10 : 11 USC 523(a)(14) & (14A). 

12 : E.g., In re Payne, case no. 05-1941, 431 F.3d 1055 (7th Cir. 2005) (under § 523(a)(1)(B)(i)). For more, see Sheehy, Is The After-Filed, Late Return Debate Over?, ABI World (November 2011). 

13 : [[http://www.nyeb.uscourts.gov/opinions/dte/363386_17_opinion.pdf][In re Casano], 473 B.R. 504 (Bankr.E.D.N.Y. 2012). The IRS asked the Casano court to adopt a rule that untimely returns filed before assessment are dischargeable. The court declined to rule one way or the other because the facts did not render that issue sub judice. 

14 : See Smith v. United States, 96 F.3d 800 (6th Cir. 1966). 

15 : See, e.g., In re Larson, 862 F.2d 112 (7th Cir. 1988) (“‘The general rule is that reliance on misinformation provided by a government employee does not provide a basis for an estoppel.”). 

16 : 11 USC 523 (a)(1)(B)(i). 

17 , 19 , 21 : 11 USC 1328(a)(2). 

18 : 11 USC 523(a)(1)(B)(ii). 

20 : 11 USC 523(a)(1)(C). 

22 : 11 USC 523(a)(1)(A) (incorporating 11 USC 507(a)(8)(A)(i)). 

25 : 11 USC 523(a)(1)(A) (incorporating 11 USC 507(a)(8)(A)(ii)). 

28 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(A)(iii)). 

31 : See discussion at 11 USC 1222#Commentary. 

32 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(B). 

35 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(C). 

36 : 11 USC 1328(a)(2) (not dischargeable); 11 USC 1322(a)(2) (must be paid in full). 

37 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(D). 

40 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(E)(i). 

43 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(E)(ii). 

46 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(F)(i). 

49 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(F)(ii). 

52 : 11 USC 523(a)(1)(A)(incorporating 11 USC 507 (a)(8)(F)(iii). 

55 : Ordinarily, liens pass through bankruptcy unaffected. Dewsnup v. Timm, 502 U.S. 410, 417-420, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992) (construing 11 USC 506(d).) 

58 : In re Snyder, 343 F.3d 1171 (9th Cir. 2003). 

Student Loan – Bankruptcy 

Certain student loans are not discharged in bankruptcy unless the debtor files an adversary proceeding and proves that the loans “impose an undue hardship on the debtor and the debtor’s dependents.” 11 USC 523(a)(8). See Krieger v. Educ. Credit Mgmt. Corp., 2013 U.S. App. LEXIS 7202 (7th Cir. Apr. 10, 2013) (upholding discharge of student loans under “undue hardship” standard). 

Table of contents for this topic: 

Discharge 

Types of loans protected 

Non-payment of tuition is a “student loan” only if (a) funds have changed hands or (2) there is a separate agreement deferring payment. A mere failure to pay when due is not a student loan. In re Chambers, 348 F.3d 650 (7th Cir. 2003). 

Undue hardship 

Brunner test 

Under the Brunner test the debtor must show (i) based on current income and expenses, he cannot maintain a minimal standard of living if required to repay student loan debts, (ii) this state of affairs will persist for a significant portion of the repayment period, and (iii) good faith repayment efforts were made in the past. Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987) 

Circuits adopting 

  • 2nd Circuit. Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987)
  • 3rd Circuit. In re Faish, 72 F.3d 298 (3d Cir. 1995) 
  • 4th Circuit. In re Mosko, 515 F.3d 319 (4th Cir. 2008) 
  • 5th Circuit. In re Gerhardt, 348 F.3d 89 (5th Cir. 2003) 
  • 6th Circuit. See Oyler v. Educ.Credit Mgmt. Corp., 397 F.3d 382, 385 (6th Cir. 2005) 
  • 7th Circuit. In re Roberson, 999 F.2d 1132 (7th Cir. 1993) 
  • 9th Circuit. In re Craig, 579 F.3d 1040 (9th Cir. 2009) 
  • 10th Circuit. Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302 (10th Cir. 2004) 
  • 11th Circuit. In re Cox, 338 F.3d 1238 (11th Cir. 2003) 

Totality of the circumstances test 

Educational Credit Management Corp. v. Jesperson, 571 F.3d 775, 779 (8th Cir. 2009), explains: 

Reviewing courts must consider the debtor’s past, present, and reasonably reliable future financial resources, the debtor’s reasonable and necessary living expenses, and “any other relevant facts and circumstances.” Long, 322 F.3d at 554. The debtor has the burden of proving undue hardship by a preponderance of the evidence. The burden is rigorous. “Simply put, if the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt – while still allowing for a minimal standard of living – then the debt should not be discharged.” Id. at 554-55. 

Circuits adopting 

Procedure 

Debtor must file an adversary proceeding seeking a determination that repaying the loan would be an undue hardship. Bankruptcy Rule 7001(6). 

Eligibility for future loans 

The anti-discrimination provisions of 11 USC 525(c) protect eligibility for federal student loans after a bankruptcy filing. However, those protections do not extend to PLUS or private loans. 

See also 

External links 

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