Category Archives: Bankruptcy

Supreme Court Unanimously Upholds Discharge Of Student Loan Debt

In a surprising decision, the U.S. Supreme Court has ruled, in United Student Aids Funds v. Espinosa, that a student may discharge the interest on their student loan debt, even though the student did not allege “undue hardship” if required to repay the loans.  When the student, Francisco Espinosa, sought bankruptcy protection and submitted his plan to the bankruptcy court judge, the student loan creditor, United Student Aids Funds, did not object.  Instead, the creditor later sought to void the plan under Federal Rule of Civil Procedure 60(b)(4).

Writing for a unanimous Court, Justice Thomas stated, “Rule 60(b)(4) does not provide a license for litigants to sleep on their rights…Where, as here, a party is notified of a plan’s contents and fails to object to confirmation of the plan before the time for appeal expires, that party has been afforded a full and fair opportunity to litigate, and the party’s failure to avail itself of that opportunity will not justify Rule 60(b)(4) relief.”

As a general rule, student loans are considered non-dischargeable in the absence of proof of undue hardship to the debtor if required to repay the loans.  Will this ruling by the Supreme Court breathe new life into the question of student loan dischargeability?  That remains to be seen.  It certainly gives more than a faint glimmer of hope in an area of bankruptcy law that many students and graduates have argued should be subject to at least partial dischargeability.

For further information on the procedural history of this important new case, you may check out these links to the ABA here and here.  You may also refer to the SCOTUS blog here.  I have also placed a PDF of the Espinosa decision in the Box for downloading.

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Excellent Resource For Taxpayers Regarding Mortgages And Foreclosures

Empty Nest Syndrome

Image by bitzcelt via Flickr

If you have not yet filed your tax return and you have questions or concerns related to your mortgage or, perhaps, even a foreclosure, I recommend that you take a look at the Mortgage Law Network blog.  In particular, the blog has some articles out right now that are aimed at educating tax payers about the ramifications of mortgage forgiveness, foreclosures, and taxes about which we should all be more informed.

The Mortgage Law Network blog is part of a network which also includes the Bankruptcy Law Network.  These blogs consistently feature timely and authoritative articles on their particular subjects,.  While I am not a member of these networks, I wholeheartedly recommend these blogs to anyone who has questions or concerns about their financial situation.

Another important feature of these blogs is that they provide links to member attorneys who practice in the area of mortgage law and bankruptcy.  If you are looking for a mortgage or bankruptcy attorney, in addition to good information on these subjects, these blogs are hard to beat.

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Mortgage Crisis Continues; Bankruptcies Soar in 2009

According to the Mortgage Law Network, 2.8 million properties were foreclosed in 2009.  Furthermore, as of January 14, 2010, a record 13% of homeowners were behind on their mortgage payments, signaling that the mortgage crisis in the U.S. is far from over.

And that’s not all.  Each year, many interest-only mortgages convert to amortized mortgages, meaning the borrower’s payment converts to one that is enough to pay off the loan on their home in a fixed period.  Typically, that period is 30 years.  As a general rule, according to the Mortgage Law Network, an interest only loan increases 15% when it converts.  Borrowers unable to pay their interest only loans will certainly be unable to pay a 15% higher mortgage bill when it comes due.

Not surprisingly, bankruptcies in the U.S. soared in 2009 to nearly 6,000 filings per day as of June 2009.  This figure was quoted in an article in U.S. Today, which you can link here.  What is surprising, however, is that bankruptcies increased for the wealthy as well as the not-so-wealthy.  According to the ABA Journal Law News Now, Chapter 11 filings by wealthy individuals jumped 73% in 2009.  Again, experts blame the poor real estate market.

For those who are interested, you can follow this link to an interactive map which shows bankruptcy filings on a per state, per capita basis.

And where is the government in this financial debacle?  M.I.A.  President Obama laid out a plan in early 2009 that included judicial modification of mortgages in bankruptcy proceedings, but that portion of his plan went nowhere in Congress.  Unless bankruptcy judges are empowered to re-write mortgages, considering the poor rate of banks actually permanently modifying mortgages under the Obama plan, then millions more homeowners are likely to lose their homes in 2010.

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