First Circuit Reverses the BAP for Fact-Finding on Appeal
First Circuit requires detailed fact-finding by the bankruptcy court on the credibility of witnesses and the elements of nondischargeability for false representations.
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Circuit Split Widens over Discharging Taxes on Late-Filed Returns
The Supreme Court has ducked the split twice in recent years but should tackle the question this time around.
Student Loan Servicer Appeals Landmark $220,000 Bankruptcy Ruling
A student loan servicer is appealing a bankruptcy judge’s watershed decision to discharge all of a U.S. Navy veteran’s student debt, YahooFinance.com reported. Educational Credit Management Corporation (ECMC) — a nonprofit that guarantees and services student loans on behalf of the Department of Education (ED) — is challenging the January 7 decision made by Chief U.S. Bankruptcy Judge Cecelia G. Morris, who discharged $221,385.49 in student loan debt for Navy veteran and lawyer Kevin Rosenberg under chapter 7 bankruptcy. The decision belies the common notion that student debt is not dischargeable under chapter 7. Judge Morris had applied the Brunner test — a three-factor standard used to identify if the borrower is facing undue hardship and cannot make repayments — to evaluate whether Rosenberg was eligible for discharge. “This Court will not participate in perpetuating these myths,” Morris wrote her decision. “Rather, this Court will apply the Brunner test as it was originally intended.” ECMC’s main contention in their appeal is that Rosenberg was licensed to practice law but did not pursue job opportunities in the same field: “Instead of pursuing those opportunities available to him, and paying back his taxpayer-backed federal student loans, Plaintiff, for the past 10 years, has held various positions in the outdoor adventure industry, including starting up and running his own tour guide business.” The loan servicer also implied that Judge Morris’ interpretation of the Brunner test was lax.
Technicalities Insulated a Lawyer from Liability for Misusing an IOLA
A creditor lost a dischargeability suit by failing to call the right witnesses to prove that a lawyer’s trust account was used to hide assets.
Debt of $46,000 Discharged Despite a Flagrantly False Loan Application
Even though the debtor defaulted, Judge Christopher Klein held a trial and ruled that the lender had not relied on a false loan application.
Courts Interpret Brunner Too Harshly, Bankruptcy Judge Cecelia Morris Says
Observing that some courts have incorrectly interpreted the Brunner test to impose “punitive standards,” Chief Bankruptcy Judge Cecelia G. Morris of the Southern District of New York allowed a debtor to discharge more than $220,000 in student loans, even though the debtor had a law degree and was neither disabled nor unemployable, according to an analysis in today's Rochelle's Daily Wire. The debtor obtained loans to finance his undergraduate education and a law degree between the years 1993 and 2004. With interest, the original principal amount of $116,500 had grown to more than $220,000 when the debtor filed his chapter 7 petition and received a general discharge. The debtor’s means test listed about $37,500 in annual pre-tax income. His Schedules I and J showed monthly net income after taxes of about $2,500 and expenses of some $4,000, giving him negative current monthly income of about $1,500. Click here to read the analysis.
Courts Interpret Brunner Too Harshly, Bankruptcy Judge Cecelia Morris Says
A debtor with a law degree but only $37,500 in gross annual income was permitted to discharge more than $220,000 in student loans.
Holding a Contempt Hearing May Be Ok, but the Remedy Might Violate Automatic Stay
A contempt hearing fell under the ‘criminal’ exception to the automatic stay, but jailing a debtor to coerce payment of a prepetition debt violated the stay, Judge Grossman ruled.