Law Commons^™

The Dischargeability Of Money Judgements Versus Property Interests In Arbitration Awards For Domestic Contributions In The Context Of Unmarried Couples, Gabriella Hansen

Bankruptcy Research Library

(Excerpt)

A debt which arises prior to the filing of the petition for discharge in bankruptcy is dischargeable unless it can be categorized as one of the statutory exceptions to discharge listed in section 523(a) of title 11 of the United States Code (the “Bankruptcy Code”). Section 523(a)(5) of the Bankruptcy Code prohibits the discharge of awards of domestic support due to a debtor’s spouse, former spouse, or child. Accordingly, maintenance, alimony, and child support, often awarded in divorce proceedings, fall under the federal bankruptcy law statutory exceptions to discharge for domestic support obligations.

When an unmarried couple separates and …

Debts Based On Fraudulent Misrepresentations Of Material Fact May Not Be Discharged Under § 523(A)(2)(A), Lauren Shoemaker

Bankruptcy Research Library

(Excerpt)

In general, title 11 of the United States Code (the “Bankruptcy Code”) provides that an individual may be discharged of his or her debts at the conclusion of his or her bankruptcy case. A discharge relieves a debtor from liability for its unpaid pre-petition debts and acts as an injunction, barring a creditor from collecting such debts from the debtor. However, under section 523(a)(2)(A) of the Bankruptcy Code, an individual debtor cannot be discharged from any debt for money obtained by “false pretenses, a false representation, or actual fraud.”

This article explores when debtors cannot be discharged of their …

Debtor Needs To Have Benefitted From Fraud To Be Barred A Discharge Under 11 U.S.C. § 523(A)(2)(A), Elizabeth Tighe

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides that a court may grant a debtor a discharge of its debts, subject to certain conditions and exceptions. One exception to dischargeability is set forth in section 523(a)(2)(A), which bars a discharge from debt “for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition.”

A key phrase in the statute is “obtained by” and courts have applied a …

Assessing The Two Tests Courts Use To Determine Dischargeability Of Student Loan Debt, Sean B. King

Bankruptcy Research Library

(Excerpt)

The purpose of bankruptcy is to give honest debtors a “fresh start.” For debtors with student loans this purpose is not automatic, rather, the viability of the student loan programs takes precedence. For student loans, the default rule is they are not dischargeable in bankruptcy. Title 11 of the United States Code (the “Bankruptcy Code”) spells this out. Under section 523(a)(8) of the Bankruptcy Code, student loans must create an “undue hardship” to be discharged.

The issue is how courts determine undue hardship under section 523(a)(8). The term “undue hardship” is not defined in the Bankruptcy Code, rather, it …

Age As A Factor In Determining Discharge Of A Debtor’S Student Loan Debt, Julia Merani

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides for debtors a “fresh start” by allowing the discharge of most debt. To obtain a discharge of student loan debt, a debtor must demonstrate “undue hardship.” If the debt is not discharged, it must still be paid. The phrase “undue hardship” is not defined in the “Bankruptcy Code and congressional record provides little guidance as to what constitutes undue hardship . . . .” Even though Congress created a single standard for discharging student loan debt; the circuit courts have adopted different tests to determine if the undue …

The Prospect Of A Debtor’S Future Employment Is A Factor Courts Consider When Discharging Student Loan Debt, Joe Pizzingrillo

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a debtor’s student loan debt is not dischargeable unless “excepting such debt from discharge . . . would impose an undue hardship on the debtor.” A majority of courts apply a three-prong test, known as the Brunner test, to determine if student loan debt may be discharged. Under this analysis, courts will generally consider a debtor’s prospects for future employment in deciding whether a student loan debt should be discharged. In connection therewith, courts will often take into account a debtor’s educational background and possession of a professional …

The Role A Debtor’S Age Plays When Determining Whether To Discharge Student Loan Debt, Joseph Wales

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) generally provides for a broad discharge of pre-petition debts, resulting in a “fresh start” for debtors post-bankruptcy. However, section 523 of the Bankruptcy Code provides that a debtor may not be discharged from student loans unless there is a showing of “undue hardship.”

“Undue hardship” is a term of art largely dependent on the circumstances of the debtor. One common circumstance is the age of the debtor. The effect of a debtor’s age on their ability to pay can vary, so the role age plays in undue hardship analyses …

Unqualified Student Loans Are Likely Dischargeable In Bankruptcy, Cristian Catanese

Bankruptcy Research Library

(Excepr)

As a general matter, most student loans are excepted from discharge under section 523 of title 11 of the United States Code (the “Bankruptcy Code”). The Bankruptcy Code prohibits discharge of certain student loans unless doing so “would impose undue hardship on the debtor and [their] dependents . . . .” Student debtors seeking to discharge student loan debt must file an adversary proceeding and demonstrate “undue hardship” — a difficult burden to meet. However, not all student loans may be subject to this requirement.

Jurisdictions are divided on whether unqualified student loans, i.e., loans outside the cost of …

The Differing Standards To Obtain A Student Loan Debt Discharge, Nicholas Bonelli

Bankruptcy Research Library

(Excerpt)

Discharging student loans in a bankruptcy case is often an uphill battle. Under section 523 of title 11 of the United States Code (the “Bankruptcy Code”), student loans are presumed nondischargeable. Thus, a discharge is generally unavailable for student loans “[u]nless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor's dependents.” To obtain a discharge, a debtor bears the burden of showing “undue hardship” by a preponderance of the evidence. In determining “undue hardship,” a majority of courts use the Brunner Test. A minority of courts use the more …

Evaluating The Availability Of An Income-Driven Repayment Plan Under The Two Doctrinal Tests For Undue Hardship, Emily R. Fisher

Bankruptcy Research Library

(Excerpt)

A fundamental goal of bankruptcy is to give the debtor a “fresh start” by discharging their debts. For student loan debtors in bankruptcy, the opportunity of a “fresh start” is limited. Under title 11 of the United States Code (the “Bankruptcy Code”), student loans are not dischargeable unless excepting such debt from discharge would impose an undue hardship on the debtor and the debtor’s dependents. Without guidance from the statutory text, the definition of undue hardship is left up to judicial interpretation, giving rise to much litigation.

An issue that frequently arises when undue hardship is litigated is the …

The High Burden Of A “Minimal Standard Of Living” Under The First Prong Of The Brunner Test, Samantha Alfano

Bankruptcy Research Library

(Excerpt)

Under section 523(a)(8) of title 11 of the United States Code (the “Bankruptcy Code”), student loan debt is not dischargeable unless the debtor can show “undue hardship.” Courts have concluded that section 523(a)(8) creates a presumption that student loans are nondischargeable, finding that the burden of challenging this presumption rests upon the individual debtor. The United States Court of Appeals for the Second Circuit in Brunner v. New York State Higher Educ. Servs. Corp., articulated what has become the standard test (the “Brunner test”) for determining undue hardship. Subsequently, the Brunner test has been adopted by the …

Sdny Bankruptcy Judges Have Differing Views On A Bankruptcy Court’S Jurisdiction To Issue Third-Party Releases, Brandon Auerbach

Bankruptcy Research Library

(Excerpt)

Under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), a debtor may receive a discharge from claims under its plan of reorganization. A chapter 11 discharge functions as a release of liability for the debtor. Often debtors attempt to include releases for non-debtor parties as part of their reorganization plans to preclude creditors from asserting claims against non-debtors. However, the Bankruptcy Code does not expressly provide for such “third party releases,” except in the context of asbestos cases. Nevertheless, bankruptcy courts have approved third-party releases in other circumstances. The courts, however, are divided as …

Discharging Student Loan Debt Under Brunner: Interpreting The Second Prong’S “Additional Circumstances” Requirement, Emily Gault

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), an individual debtor is not entitled to a discharge of his or her student loan debt “unless excepting such debt from discharge…would impose an undue hardship on the debtor and the debtor’s dependents.” Because the Bankruptcy Code does not define the term “undue hardship,” the courts have applied a broad range of standards which has resulted in a “state of considerable confusion.” Currently, the majority of circuit courts have adopted the test formulated by the United States Court of Appeals for the Second Circuit to determine what qualifies …

The Brunner Test Imposes A High Burden To Discharge Student Loan Debt, Lindsey Haynes

Bankruptcy Research Library

(Excerpt)

The United States Bankruptcy Code (the “Code”) makes it more difficult to discharge student loan debt than other debts. Student loans are treated differently from other loans because they are presumptively nondischargable. The government wants to ensure young debtors with promising future income streams remain liable to preserve student loan funding in the future. More specifically, section 523(a)(8) of the Code prevents abuses of the educational loan system and protects the continued viability of student loan programs. But, if certain circumstances are proven, student loan debt can be discharged.

The Code states if repayment “would impose an undue hardship …

The Objective Standard For Holding A Creditor In Civil Contempt For Violating A Discharge Order, Alexander Cirkovic Koban

Bankruptcy Research Library

(Excerpt)

An individual debtor is generally entitled to a discharge at the conclusion of a bankruptcy case. A discharge is a legal injunction that both releases the debtor from liability for most pre-bankruptcy debts and bars creditors from collecting any debt that has been discharged. A creditor that violates the discharge may be held in contempt and subject to sanctions by a court.

In Taggart v. Lorenzen, the Supreme Court set the standard for when to impose civil contempt, holding that “a court may hold a creditor in civil contempt for violating a discharge order if there is no …

Exempt Assets May Not Be Considered When Determining If Student Loan Should Be Discharged, Kayla Mistretta

Bankruptcy Research Library

(Excerpt)

Student loans are presumptively non-dischargeable under title 11 of the United States Code (the “Bankruptcy Code”). The Bankruptcy Code, however, provides that a debtor may rebut the presumption and be discharged from student loans if the debtor can prove that excepting the debt from discharge would cause “undue hardship” on the debtor or the debtor’s dependents. Proving undue hardship is a “formidable task” for a debtor, but not an impossible one. The Bankruptcy Code does not define undue hardship and does not provide bankruptcy courts with any guidance on how to evaluate it. Accordingly, Congress has given bankruptcy courts …

Determining When The Granting Of Relief Is Deemed Abuse Of The Bankruptcy Code Under Section 707, Angela Bonica

Bankruptcy Research Library

(Excerpt)

There is no constitutional right for an individual to have their debts discharged. A discharge is a privilege offered to the honest but unfortunate debtor pursuant to title 11 of the United States Code (the “Bankruptcy Code”). A bankruptcy court considers different standards and/or tests to determine when a debtor may be abusing the relief provided under the Bankruptcy Code. The specific provision that restricts relief because of abuse was originally enacted in 1984, and then amended in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). A main purpose of the BAPCPA was to deter abuses …

Discharge Under Section 524(A) Does Not Preclude A Suit To Recover From A Debtor’S Insurer, Michael P. Pitre

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a discharge of a debt “operates as an injunction against the commencement or continuation of an action . . . to collect, recover, or offset any debt as a personal liability of the debtor.” This discharge is the “principle advantage bankruptcy offers an individual” because it provides the debtor with a “fresh start” by freeing him from the chains of previous debts.

Even so, a “discharge in bankruptcy does not extinguish the debt itself, but merely releases the debtor from personal liability for the debt.” Therefore, as provided …

Bankruptcy Schedules Will Not Be Treated As Judicial Admissions In Court, Charles Akinboyewa Jr.

Bankruptcy Research Library

(Exceprt)

When an individual debtor files for bankruptcy, it must file bankruptcy schedules listing, among other things, the creditors that hold claims against the individual. The information contained on the schedules may have ramifications on the debtor and its creditors. Specifically, often debtors unknowingly fail to list certain claims, which may affect the debtor’s right to discharge a creditor’s right to a recovery. Part I of this memo discusses bankruptcy schedules and claim dischargeability. Part II illustrates the distinction between judicial and evidentiary admissions. Part III explores cases that have held bankruptcy schedules to be admissions and others that have …

Stop Right There! Assessing The Role Of Collateral Estoppel In A Fraud Proceeding Against A Debtor And A Debtor-Owned Business, Brandon Dorman

Bankruptcy Research Library

(Excerpt)

In an adversary proceeding, under section 523(a)(2)(A) of title 11 of the United States Code (the “Bankruptcy Code”), to determine the non-dischargeability of a debt based upon fraud, a state courts finding of fraud against a debtor-owned business may collaterally estop the debtor in the adversary proceeding from relitigating the issue of fraud. Essential to this issue is the timing at which the debtor filed for bankruptcy. Timing is critical in determining whether the prior decision against the debtor-owned business in the state court action collaterally estopped the litigation against the debtor or whether the debtor was afforded the …

Non-Dischargeability Of Foreign Student Loans, Andrew Brown

Bankruptcy Research Library

(Excerpt)

Educational loans made, insured, or guaranteed by a governmental unit are not dischargeable in a bankruptcy case, unless the debtor obtains a hardship determination. This is true even if the loan is made, insured, or guaranteed by a foreign governmental unit. The rationale behind making it difficult to discharge student loans via the United States Bankruptcy Code (the “Code”) is to prevent abuses of the educational loan system, specifically students filing for bankruptcy shortly after graduation to discharge their loans.

Various circuit courts have adopted two tests when applying the undue hardship provision of section 532(a)(8). In 1987, the …

The Possibility Of Discharging Student Loan Debt And Assessing The Differing Standards Applied By The Courts, Maria Casamassa

Bankruptcy Research Library

(Excerpt)

Discharging student loan debt under the United States Bankruptcy Code (the “Bankruptcy Code”) is more difficult than attempting to discharge other types of debt. Although discharging student loan debt is not a simple hurdle to surpass, it is possible in certain circumstances. Under the Bankruptcy Code, student loan debt may not be discharged “unless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor's dependents . . . .” The Bankruptcy Code does not define undue hardship. Congress “left it up to the various Bankruptcy Courts to utilize their discretion …

Debt Discharge, Intent And Good Faith, Arielle Cummings

Bankruptcy Research Library

(Excerpt)

Discharge is of singular importance to the individual in a Chapter 7 case. Discharge enables the debtor to begin a new financial life, and it provides the debtor with a fresh start. In order for this to happen, among other effects, section 524 of title 11 of the United States Code (the “Bankruptcy Code”), which addresses the effects of discharge, voids any judgment against the debtor subject to the discharge. Section 524 also provides a statutory injunction against the continued prosecution of any action that would lead to liability on the claim subject to discharge. Section 727 of the …

A Showing Of Gross Recklessness Satisfies Section 523(A)(2)(A): Denying Deceivers The Ability To Discharge Debts Related To Fraudulently Obtained Funds, Megan Kuzniewski

Bankruptcy Research Library

(Excerpt)

11 U.S.C. Section 523(a) lists certain debts that may not be discharged through a debtor’s bankruptcy. In particular, section 523(a)(2)(A) provides that a debtor who files bankruptcy will not be discharged of debts that were obtained by “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” False representations, such as those described in section 523(a)(2)(A), carry a scienter requirement which requires that it be shown that an individual knowingly made false statements or representations. This requirement carries a heavy burden, as trying to prove that a person had …

Student Loans Can Be Discharged (At Least Partially) In Bankruptcy After All, Carmella Gubbiotti

Bankruptcy Research Library

(Excerpt)

Section 523 of the Bankruptcy Code sets forth debts that are not dischargeable. Among the non-dischargeable debts, which a debtor will still owe after they receive a bankruptcy discharge, are debts from educational loans. As such, these student loan debts may prevent many debtors from receiving a truly fresh start following bankruptcy. Courts historically have approached the undue hardship exception to this rule narrowly, applying it only where the debtor, under the circumstances, could not reap the benefit of her education.

This Article will discuss the various tests courts use to determine whether an educational debt is dischargeable. Part …

The Permissibility Of Chapter 11 Non-Debtor Release Provisions, Ashraf Mokbel

Bankruptcy Research Library

(Excerpt)

Generally speaking, bankruptcy proceedings do not impact non-debtor third parties liabilities. However, bankruptcy courts are courts of equity. This raises the issue of what provisions may be included in a confirmable plan. Specifically, there is the issue of whether a bankruptcy court can confirm a plan if it contains a non-debtor release provision which impacts non-debtor third party liabilities.

A non-debtor release provision shields third parties who share an identity of interest with the debtor, usually corporate officers and directors in a Chapter 11 proceeding, from any claim, obligation, cause of action, or liability to any party in interest …

Fairness Over Deference: The Shifting Landscape Of Creditors Rights To Claims And Debtor Protection Regarding The Issuance Of Form 1099-C, Patrick Christensen

Bankruptcy Research Library

(Excerpt)

Issues surrounding the discharge of indebtedness with regard to Form 1099-C filings have recently become a difficult issue for bankruptcy courts. When a debtor cannot afford to pay a creditor an outstanding debt, a Form 1099-C is utilized to “discharge the debt.” The resulting cancellation is then reportable for tax purposes for both the debtor (as cancellation-of-debt income – “COD income”) and the creditor (as a deduction). Form 1099-C filings are made by creditors and issued to each “debtor for whom . . . $600 or more of a debt owed” had been cancelled.

Courts have had to consider …

Discharging Non-Filing Co-Debtor Debt Under Chapter 13, Carly Krupnick

Bankruptcy Research Library

(Excerpt)

During chapter 13 proceedings, both the debtor and the non-filing co-debtor are protected from their creditors by a stay. Once a bankruptcy petition is filed, section 362(a) of the Bankruptcy Code creates an “automatic stay” that operates by halting almost all actions by creditors against the debtor and his property to collect a prepetition debt. In a chapter 13 bankruptcy case, section 1301(a) provides that the filing of the petition also automatically creates a co-debtor stay that generally prevents a creditor from taking any “act[ion], or commenc[ing] or continu[ing] any civil action, to collect all or any part of …

Intentional Conduct May Be Required To Prove Defalcation Under Section 523(A)(4) In Certain Circuits, Elizabeth Vanderlinde

Bankruptcy Research Library

(Excerpt)

In the average bankruptcy case, individual debtors seek to discharge some, all, or most of their debts. The Bankruptcy Code (the “Code”) sets certain limits on the dischargeability of obligations. For example, section 523 of the Code provides circumstances in which certain debts are not dischargeable. Specifically, section 523(a)(4) provides that an individual debtor will not be discharged from any debt “for fraud or defalcation while acting in a fiduciary capacity.” In the bankruptcy context, defalcation means “the failure to meet an obligation.” However, the Code is silent as to the level of culpability required to prove defalcation. The …

Discharge Under The Code For Erisa "Fiduciaries", Devin Sullivan

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code (“Code”) provides debtors with relief from many of their outstanding debts. However, even under the broad protection of the Code, some debts cannot be erased. Pursuant to section 523(a)(4) of the Code, an individual debtor may not discharge any debt for fraud or defalcation (unauthorized appropriation of money) while acting in a fiduciary capacity. 11 U.S.C. § 523(a)(4). The federal courts are currently split on the issue of whether a debtor who qualifies as a “fiduciary” under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 et seq, (“ERISA”) will also qualify as …