The Discharge of Student Loans in Bankruptcy

Can You Discharge Student Loan Payments in Bankruptcy?

For many Americans struggling with overwhelming debt, the single biggest obligation they face is student loans. Unfortunately, it is extremely hard to discharge student loan debt in bankruptcy. Here are the limited circumstances when you may successfully rid yourself of such a debt.

Do You Qualify for the “Undue Hardship” Exception?

The only way you can successfully discharge student loan debt is to demonstrate to the bankruptcy court that repayment would constitute “an extreme hardship.” The test most commonly used by the courts was set forth in Brunner v. New York Higher Education Services Corp., decided in 1987. Under Brunner, the court will use three factors to determine whether repayment of the student loan obligation would bring about an undue hardship:

  • Have you made a good faith effort to repay your student loan?
  • If you are required to repay the loan, will you be able to maintain a minimal standard of living, based on current income and expenses?
  • Is there evidence to indicate that your current financial situation is likely to occur for a significant period of time?

What is the “Totality of Your Circumstances”?

Other courts adopt a less rigid test, instead looking at “the totality of the circumstances.” Under this test, a court will typically not give inordinate weight to any factor, but will try to determine, given all the facts and evidence related to your current and prospective financial health, whether requiring you to pay the student loan would create an undue hardship.

Restructuring Student Debt through Chapter 13

It is generally much easier to enter into a repayment plan for student loans, where you agree to repay the debt over a three-to-five-year period. Any amount still owed after the Chapter 13 is completed will not be discharged, though.

The Treatment of Motor Vehicle Loans in Bankruptcy

Can You Keep Your Car in a Bankruptcy Proceeding?

Both state and federal bankruptcy laws provide some level of exemption for the value of a motor vehicle when you file for protection under Chapter 7. Depending on your circumstances, you may or may not be able to keep your vehicle in a Chapter 7 petition.

The Role of the Exemption

As a general rule, you can’t keep secured property and simultaneously discharge debt on the property. This applies to any motor vehicle that is not fully paid off. If you own your car free and clear, you can typically exempt it from sale to the extent that its replacement value is less than the amount allowed in the exemption.

The Exemption is on the Equity in Your Vehicle

The state or federal exemption for a motor vehicle applies to the equity you have—essentially the value of the vehicle over and above what is owed on it. If you have fully paid the car off, its replacement value is your equity. If you still owe on your vehicle note, the equity will be its replacement value, less the amount owed.
If you are “under water” on your note, i.e., the amount owed on the car is more than the fair market value, it’s highly unlikely that the bankruptcy trustee will take your car. Because the trustee will be required to pay the car loan off before funds are available for unsecured creditors, there’s no incentive to take it. Even if the trustee could sell the car for a small profit, you are entitled to your exemption amount, and there will be costs associated with the sale. As a practical matter, then, you can often keep your car if there’s little or no equity.

The Treatment of Your Primary Mortgage Lender in a Bankruptcy Proceeding


What Happens to Your Primary Residence in Bankruptcy?

If you are struggling to pay your debts, one of which is a substantial mortgage, you may have considered bankruptcy, but worry about what will happen to your home. Can you discharge the debt on your house? Will you be forced to give up your property?
One of the basic rules of bankruptcy is that you generally cannot discharge the debt on secured property and keep the property. There are, however, some exceptions.
If you have a mortgage or land contract on your principal residence, it will be considered secured debt. When you file for bankruptcy protection, you will be entitled to the automatic stay, which prohibits your creditors, including your mortgage company, from attempting to collect a debt other than through the bankruptcy proceeding. However, the circumstances under which you will be allowed to eliminate the debt on the home and stay there are extremely limited.

Keeping Your Home in a Chapter 13 Proceeding

Most debtors use a Chapter 13 filing to keep a primary residence. With a Chapter 13 petition, you enter into new payment arrangements with creditors, including your mortgage lender. Typically, the repayment period lasts three to five years. During that time, you often pay a smaller amount, and don’t have to face calls, letters or other attempts to collect on the mortgage. However, when the Chapter 13 period is over (which will have allowed you to fully pay off many of your debts), any amount still owing on your home is still due. Ideally, because you no longer have many of your other debts, you will have the additional cash flow to make full payments. You may even be able to refinance or renegotiate the terms of your mortgage.

Keeping Your Home in a Chapter 7 Proceeding

In a Chapter 7 filing, you get to discharge debts in exchange for the sale of assets. Both state and federal bankruptcy laws allow you to keep a certain amount of your property, known as your “exemption amount.” There are generally only two ways that you can file for Chapter 7 bankruptcy protection and keep your home: you own your home outright and the value of your home is falls within the exemption amount, or you have no equity in your home.
If you own your home free and clear, and its value is less than set forth in the state or federal exemptions, the trustee cannot touch it. On the other hand, if you have little or no equity in your home, there’s no incentive for the trustee to try to sell it. The trustee would be required to pay off the mortgage first, and you are then entitled to your exemption amount before any other creditors receive anything.

President Obama’s Executive Action on Immigration

In November, 2014, President Barack Obama signed an executive order addressing a wide range of immigration issues. Specifically, the order:

  • Allows parents of American citizens, as well as lawful permanent residents of the United States who have been in the country since the beginning of 2010, to ask for deferred action and employment authorization for three years. Applicants will be required to submit to a background check. Anyone who was considered an enforcement priority for removal before the order was issued will not qualify. Immigration authorities estimate that this provision will affect approximately four million undocumented aliens.
  • Makes more people eligible for the DACA (Deferred Action for Childhood Arrivals) program. DACA applies to individuals who came to the United States before the age of 16. Under the executive order, anyone qualifying under DACA may ask to have their work authorization extended from two to three years. Persons born before June 15, 1981, can now qualify for DACA benefits. Applicants must have lived in the United States since January 1, 2010 (the prior requirement was 2007). Officials project that an additional 300,000 people will be eligible for DACA benefits.
  • Expands the use of what are known as “provisional waivers” to allow spouses and adult children of lawful permanent residents or U.S. citizens to avoid actions based on allegations of unlawful presence in the United States. Under prior law, only minor children and spouses of U.S. citizens qualified.
  • Makes changes in immigrant and non-immigrant programs designed to bolster the American economy. As part of this effort, USCIS will work with the U.S. State Department to address a number of factors that affect the ability of immigrants to work in the United States.
  • Increases availability of and access to information for lawful permanent residents
  • Allows applicants for naturalization to pay fees with a credit card.

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International vs. Domestic Adoptions

International vs. Domestic Adoptions

When bringing a new child into your home through adoption, you can choose to look for a child within the United States—a domestic adoption—or you can adopt almost anywhere in the world—an international adoption. There are advantages and disadvantages to both processes.

The Financial Commitment

It’s a common misperception that an international adoption will always be more expensive than a domestic adoption. In an international adoption, one of the primary costs involves travel to the child’s country—some countries require multiple visits. However, in a domestic adoption, where you are adopting a newborn, you may agree to pay living and medical expenses for a number of months. Those types of expenses are generally unheard of in international adoptions. In addition, if you adopt a child from another state, you may have to stay in that state with the child until the court or agency in that state formally approves the adoption.

Most adoption professionals consider that costs of domestic and international adoptions to be comparable, generally falling somewhere between $25,000 and $50,000.

The Amount of Time Involved

With a domestic adoption, the amount of time can vary from a few months to years. Domestic adoptions are generally a matter of finding the right match. Prospective adoptive parents typically put together a family profile, which gets seen by prospective birth mothers. If a birth mother selects a family based on a profile, there will customarily still be some additional vetting process, often involving a meeting between adoptive and birth parents. Accordingly, most adoptive parents simply have to wait until someone chooses them.

The international adoption process varies from country to country. Most countries make some effort to examine the background of the prospective parents and intentionally match children with specific parents, but often it can be on a first-come, first-served, basis.

Availability of Information

One of the principal reasons many adoptive parents are willing to go through the domestic adoption process is that there is typically far more information, especially medical information, available in domestic adoptions. In many foreign adoptions, the child being adopted was simply abandoned at or near an orphanage, so there is no family information available.

Potential for Contact between Birth Parents and Adoptive Parents

For some adoptive parents, the fear that the child will try to reconnect with his or her birth parent makes an international adoption more attractive. With most international adoptions, the birth mother is either unknown or simply cannot be found.

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Open vs. Closed Adoption

Open vs. Closed Adoption

Until the latter part of the 20th century, adoption often carried a stigma, with the perception that most adoptees were illegitimate children. Accordingly, most adoption proceedings were fairly secretive, and it was common practice that the birthmother had no contact with or knowledge of the adoptive parents. As the stigma has faded, and as mental health and child welfare professionals have come to understand the potential benefits to the child of understanding his or her heritage, the option of “open adoption” has been embraced by many participants.

In an open adoption, the birth parents and the adoptive parents get contact information from each other and usually meet before the adoption takes place. Often, the birth mother will be at some stage of pregnancy, having made the decision to give the child up for adoption after birth. The parties can mutually decide how much interaction they want to have, both before and after the birth of the child. It is not uncommon for the parents to decide that the birth mother will have visitation of some sort, either on the child’s birthday or more frequently.

Many adoptive parents, however, fear that a continued relationship with the birth mother will be confusing to the child, and may lead the child to perceive that he or she doesn’t really belong anywhere. Open adoption proceedings are not mandatory in any state. The adoptive parents can choose to have all communications handled through an intermediary, and to have all information about the birth parent sealed. As a general rule, a closed adoption must be facilitated by an adoption agency.

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Agency vs. Private Adoptions

Domestic adoptions essentially come in two forms: agency adoptions and private, or independent, adoptions.

Agency Adoption

In an agency adoption, the prospective adoptive parents contact an adoption agency. An adoption agencyfacilitates the identification of a birth mother, the matching of a birth mother to a prospective adoptive family, the termination of birth-parent rights and the placement of the child with the prospective adoptive family. Some adoption agencies also help finalize the adoption. Prospective adoptive parents choose between a public adoption agency and a private adoption agency.

Public adoption agencies are funded by the state in which they are located and find adoptive homes for children who have been placed in the state’s custody, normally in the foster care system. Prospective adoptive families willing to adopt older children or children with special needs or emotional disabilities should consider contacting a public adoption agency. There is little cost associated with a child from a public agency, and in fact, until the adoption is completed, the child may be eligible for government subsidies.
For prospective adoptive families searching for a newborn or infant child, a private adoption agency likely will be more able to locate a child. A private adoption agency can be a profit or non-profit business and is licensed by the state in which it is located. A private agency adoption usually is more expensive than a public agency adoption but allows prospective adoptive families to have more control over the adoption process and over the age, sex and race of the adoptive child.

If there are birth-mother expenses, some states require that the prospective adoptive parents use a licensed adoption agency to monitor payment to prevent later claims that the prospective adoptive parents essentially were “buying” the child from the birth parents. Although some expenses can be provided, it is illegal in every state to pay the birth parents to adopt their child.

In an agency placement, the child may be placed at birth with the adoptive parents, or if there are any legal risks, the child may be placed in transitional care until the risks are minimized or eliminated.

Some states provide that the birth parents’ rights are terminated upon signing the relinquishment/consent, and some require that the relinquishment/consent be taken to a judge for approval and an order of termination. The first type of state is known as a consent state and the latter a judicial-termination state.

Once the birth parents sign the relinquishment/consent, if the case is in a judicial-termination state, the agency will have a legal termination hearing to officially terminate any rights the birth mother and any potential birth father have to the child.

After a set period of time determined by state law, the prospective adoptive parents may finalize their adoption at another hearing held in the court where the termination took place or in their home state. If an order of termination is required, the prospective adoptive parents need the written consent of the adoption agency. In some states, the adoption may become valid by operation of law.

Private Adoption

In a private or independent adoption, prospective adoptive parents choose a birth mother themselves and hire an attorney to handle the adoption process. Private adoptions are governed by the laws of the state in which the adoption takes place, usually the state in which the child was born. Unlike an agency adoption, in a private adoption, the birth mother relinquishes the child directly to the prospective adoptive parents. After a period of time determined by state law, the prospective adoptive family may finalize the adoption at a court hearing.

In some states, if a birth mother requests living expenses, the prospective adoptive parents are required to hire an adoption agency to facilitate the adoption.

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Agency vs. Private Adoptions

Adoption-An Overview

You may be considering adoption for a number of reasons. Perhaps you married someone with children from a prior relationship and you want them to have all the benefits that come with being legally designated as your child. Maybe you want to start a family, but are unable to have children biologically. Or you might just want to give a child a good home.

The stepparent adoption process is pretty straightforward, with the most significant challenge involving the termination of the non-custodial parent’s parental rights. Often, this can be done voluntarily, provided the non-custodial parent still has visitation rights. However, if necessary, you can ask a court to
termination of parental rights, but the court will give priority to the best interests of the child when making that decision.

In other adoption proceedings, you have a lot of choices:

Adoption is governed by state law, so that specific requirements will vary from state to state. If you choose to adopt a child from another state, the Interstate Compact for the Placement of Children will apply, and you will probably have to obtain the approval of state agencies in both states before the adoption is final.

As a general rule, before you can adopt, a home study must be completed to show that you have the financial resources to care for a child, and that you have the requisite skills and character to raise a child. In most instances, you must submit to a background check, including a criminal records check, before an adoption will be approved.

The agency or court that is considering your adoption may take your age into consideration—in most states, you must be at least 21, and some states/agencies will not approve an adoption if they think you are too old. There are no legal restrictions against adopting as a single parent, and same-sex couples can adopt in all but four states.