I recently had a client who was reorganizing student loan debt over a five-year period. He was willing to pay back 10% of the student loans knowing full well that the other 90% would be due and owing plus interest after his bankruptcy case was over. He did have some minor credit card debt and minor medical bills that were also going to be paying back 10%. When it turns out, at the end of his bankruptcy, he receives a letter from his trustee indicating that he needs to take a two hour financial management class in order to obtain a discharge. He then contacts my office to determine whether or not he should take the class or not. The answer may surprise you.
Solution: Chapter 13 Bankruptcy
In a situation above, I would advise someone to not take the financial management class and forgo the bankruptcy discharge under chapter 13. Since his debt was primarily student loan debt, the 90% that remains due and owing would not have been dischargeable anyway. Thus, why exhaust the bankruptcy discharge for almost no benefit in return. By preserving his discharge, he keeps that option open in the event that something catastrophic occurs and he may need to file a chapter 7; which leads me to the next point.
A Bankruptcy Discharge isn’t necessarily needed..
Many chapter 7 filings don’t really need a discharge either. When a bankruptcy case is filed under chapter 7, creditors will receive a notice from the clerk of the United States bankruptcy court that the person has filed for bankruptcy relief. The person will also appear in front of the chapter 7 panel trustee who will make a finding of no assets. If the debtor does not take the two hour financial management class, then he or she will not receive a discharge and the case will technically close without the issuance of a discharge. This means that creditors can continue to pursue the debtor in an effort to collect on the non-dischargeable debts. However, in my experience, most creditors will simply close the book on the debtor knowing that he filed a chapter 7, the trustee made a finding of no assets, and there was no administration for the benefit of unsecured creditors. It would take a very smart and diligent creditor to realize that the case has close without a discharge and that the debtor is still vulnerable to collection activities.
As you can see from the above examples, filing bankruptcy and receiving a discharge is not a simple process in every case. There are specific facts and circumstances which will lead one to make decisions that may not seem customary. However, those decisions and the advice of counsel can be extremely beneficial in the days, weeks and years that lie ahead for the debtor.
If you are struggling with debt and you have questions as to how the bankruptcy code and the bankruptcy laws can benefit you and your family, you may contact the office for sound advice.
