A recent case from the 11th Circuit affirmed the rulings of the bankruptcy and district court that a debtor failed to show that she met the standards for undue hardship in order to discharge a student loan.  In Graddy v. Educ. Credit Mgmt. Corp. (In re Graddy), 2021 U.S. App. LEXIS 16371, 2021 WL 2224350, Case No 20-12267 (11th Cir., 2 June 2021) the Debtor had gone to NYU School of Law from 1994-1997 then practiced as a prosecutor at $35,000/year, then moved to Georgia and worked for various law firms before deciding she had to change careers.  She graduated from a master's program in cinematic arts in 2008 but had to move back to Georgia working in various legal jobs since then.  Ms. Graddy filed bankruptcy in 2009, then sought to reopen that case in 2015 in order to seek discharge of the student loans.  Per 11 U.S.C. §523(a)(8) a debtor must show that excepting the student loan debt from discharge would impose an undue hardship on her and her dependents.  ECMC, the student loan creditor, asserted about $389,000 in student loan debt.  The bankruptcy court found Ms. Graddy had an average monthly income of about $8,600, and the Pay As You Earn repayment program would require her to pay $673/month at most for a $389,000 debt.  The court also found that Graddy had found adequate employment with her degrees, and she did not make a good faith effort to repay her loans.  The district court affirmed, rejecting her arguments that discovery issues did not cause reversible error, and that Graddy did not show clear error for the undue burden issues.  The 11th Circuit initially note that the Bankruptcy Code provides generally that student loans should not be discharged, with a narrow exception for cases where a debtor shows undue hardship.   The Court reaffirmed the Brunner test, requiring debtor's to show 1) that the debtor cannot maintain, based on current income and expenses, a 'minimal' standard of living for herself and her dependents if forced to repay the loans; 2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) that the debtor has made good faith efforts to repay the loans.1  The 11th Circuit noted that it is the debtor's burden to show by a preponderance of the evidence that all three factors are met.2   As there was no dispute that the student loan itself existed, the issue on appeal was whether Graddy carried this burden.  This is a mixed question of law and facts.  However Graddy failed to provide any controlling case law to show an error of law in the bankruptcy court's conclusion that she failed to prove circumstances indicating a future inability to make payments on the loans. Further she failed to meet the stringent standard of the 11th Circuit to show that such inability would be likely to continue for a significant time, such that there is a certainty of hopelessness that the debtor will be able to repay the loans within the repayment period.3  Further, the bankruptcy court's factual findings are not clearly erroneous unless the appellate court, after reviewing all the evidence, is left with the definite and firm conviction that a mistake has been committed.4  As the lower court examined her work history, her employability, and her home and car ownership, the 11th Circuit could not find that this was insufficient evidence to find a lack of certainty of hopelessness.  Graddy also complained that some documents brought forth by ECMC should have been excluded due to lack of initial disclosures, failure to bring various loan histories 30 days prior to trial, and admission of third party documents.  The 11th Circuit found that any such failures did not excuse her inability to show an entitlement to discharge.  Any error as to admission of loan histories or third party documents would be harmless, as they went toward proving the amount of the debt rather than the existence of the debt; and ECMC was not required to show the amount of the debt.  As to her allegation of a trial by ambush, both the initial and pretrial disclosures are matters the trial court has leeway in handling.  The court further rejected her due process claim it found Graddy had not shown that any of the alleged errors prejudiced her or that the court abused its discretion.1 Brunner v. New York State Higher Education Services Corporation, 831 F.2d 395, 396 (2nd Cir. 1987).↩2 In re Mosley, 494 F.3d 1320, 1324 (11th Cir. 2007)↩3 Mosley, 494 F.3d at 1326.↩4 In re Cox, 338 F.3d 1238, 1241 (11th Cir. 2003).↩Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, FL 33609-1703813 870-3100https://hillsboroughbankruptcy.com

" I retained Jim Shenwick from a recommendation from another attorney. All I can say is, Jim is a  Professional! Jim got me to relax by taking full ownership of my bankruptcy situation and made the whole process easy for me! Jim and his team went above and beyond to get the job done. I highly recommend Jim"            E___ B___ A___  

Are you eligible for student loan relief? Obtaining a student loan discharge -- or sometimes partial relief -- is not impossible.

“Does Reaffirming My Car Loan Help My Credit Score?” Ray and Theresa, who filed bankruptcy with me last fall, asked me that last week. Lots of people ask that same question after they look at their after-bankruptcy credit report and see that their car payments don’t show.  Then, they are told by their car finance […] The post Does Reaffirming Your Car Loan Help Your Credit Score? by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed.

   Placing the title of a house into a joint revocable living trust appears to have caused the loss of an exemption to the property in In re Givans, 2021 Bankr. LEXIS 1449, Case No. 6:19-bk-01928-KSJ (27 May 2021).  The property had been transferred by Debtor and his spouse into the trust in 2014.  The trust provided that Debtor and his spouse were both settlors and trustee's of the trust, and that upon the death of either, the the surviving spouse would remain a settlor and trustee, and would become an income beneficiary.  Upon the death of both their children would would become the beneficiaries of the trust.  The Debtor filed for relief under chapter 7 in 2019.    The Debtors asserted a tenancy by entireties exemption on the property, which was rejected as a trust cannot hold real property by tenancy by the entireties.  Upon the trustee's request to administer the Debtor's 50% interest in the property, the Debtor asserted that the trust was subject to a valid spendthrift trust provision.  The court noted that a restriction on transferring a debtor's interest in a trust which is enforceable under nonbankruptcy law would remain enforceable in bankruptcy; and such property would be excluded from property of the estate under §541.   Florida law governs the trust, and enforceability of the spendthrift provision.  Florida law recognizes the validity of spendthrift trust provisions only if the provision restrains both voluntary and involuntary transfers of the beneficiary's interest.1   It is also  a problem that the Debtor and his spouse transferred the assets into the trust and are allowed to retain control and decision-making power over the assets,  thus making this a self-settled trust.   The trust provides that the Debtor and his spouse can revoke or terminate the trust during their lives, or require the trust to pay the entire trust estate to them.  Debtor could terminate the trust at his sole option if his spouse predeceases him.  Further the trust terminates on the death of Debtor and his spouse.   This was not a trust designed to provide a fund for the maintenance of their children or protect such children from their own improvidence, and does not qualify as a spendthrift trust.  §736.0505 Fla. Stat. provides that a revocable trust is subject to the claims of the settlor's creditors during the settlor's lifetime to the extent they are not otherwise exempt and if owned directly by the settlor.  Transferring the house to the trust converted the ownership interest from tenancy by the entireties to joint tenants in common.   Under joint tenants in common, each owner has their own separate share which is presumed to be equal, and which can be reached by a creditor holding a claim against such owner.  This interest can be reached without the consent of a co-trustee even if the terms of the trust require such consent.2    The Court granted the request of the trustee to administer the Debtor's 50% interest in the estate, including authority to partition the property if necessary.    Query if there is a malpractice claim out here somewhere that also may be property of the estate.1 Fla. Stat. §736.0502↩2 Fla. Stat. §736.0505↩Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, FL 33609-1703813 870-3100https://hillsboroughbankruptcy.com

Unfortunately, it is not uncommon for someone to have a credit card in their wallet they are unable to use because it is maxed out. Nonetheless, they keep making the minimum monthly interest payment every thirty days. In some cases, there are multiple cards and people are transferring entire balances in hopes of getting a […] The post Can You File For Bankruptcy to Avoid Defaulting on a Credit Card in Pennsylvania? appeared first on .

Healthcare costs seem to continually rise in the United States and Pennsylvania. In a July 2020 Gallup poll, 50% of American households were extremely concerned about a major heath event leading to bankruptcy. In fact, roughly 15% of adults reported that at least one person in their family has long-term medical debt that they are […] The post Can You File for Bankruptcy to Avoid Defaulting on Medical Bills in Pennsylvania? appeared first on .

When a person is arrested and held in police custody, they often rely on friends and family on the outside to help them. In many cases, an arrested individual will depend on their spouse. The spouse outside of police custody is in a better position to begin meeting with attorneys and figuring out how to […] The post What to Do if Your Spouse Was Arrested in Bucks County, Pennsylvania appeared first on .

 The intersection between bankruptcy and personal injury tort claims can be a difficult one, as shown by a new opinion from Judge Marvin Isgur in Case No. 20-33900, In re Tailored Brands, Inc. (Bankr. S.D. Tex. 5/20/21). The opinion can be found here. The case involves a man who filed an employment discrimination suit against the clothier, but found his claims discharged without any ability to collect from insurance proceeds. The case is a cautionary tale for attorneys dealing with tort claims when a bankruptcy is filed, as large companies increasingly include large self-retention amounts as part of their insurance policies. What Happened In 2018, Michael Hoffman filed suit against The Men’s Warehouse, a Tailored Brands affiliate, and a Men’s Warehouse employee, alleging employment discrimination and harassment. When Tailored Brands (TB) filed bankruptcy, the automatic stay prevented Mr. Hoffman’s suit from going forward. By the time the suit was filed, TB had already spent $321,000 in defense costs. Mr. Hoffman filed a motion for relief from the automatic stay. TB opposed the motion claiming that it would have to pay to defend the suit because it had a large, self-insured retention under its insurance policy and that the effective date of its plan would occur soon. TB’s employment insurance policy provides: The Insurer shall be liable for only that part of Loss arising from a Claim which is excess of the Retention amount only set forth in Item IV. of the Declarations or Item V., if applicable. The Retention shall be uninsured and shall be paid only by an Insured, regardless of the number of claimants, Claims made, or Insureds against whom a Claim is made. The “Retention amount” under Tailored Brands’ policy is $500,000, “inclusive of Defense Costs.” Tailored Brands’ policy also provides that, “[i]n the event [Tailored Brands] is unable to indemnify or advance costs on behalf of an [employee] due to its financial insolvency, no Retention will apply.” After the plan was confirmed, Mr. Hoffman filed a motion to allow a late filed claim. The parties agreed that he could have an allowed claim of $250,000. Mr. Hoffman then filed a motion to be relieved from the discharge injunction imposed by confirmation of the Debtor’s plan. TB objected arguing that because Mr. Hoffman already had an allowed claim, he could receive a double recovery if he received payment on his allowed claim and payment pursuant to the state court suit. The Parties’ Contentions Hoffman relied on 11 U.S.C. Sec. 524(e) which states that “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity, for such debt.” Thus, Hoffman argued that he could proceed against TB as a nominal party for the purpose of seeking coverage under TB’s insurance policy. TB argued that it would have to pay the remainder of its self-retention amount ($179,000), before insurance would kick in and that this would be a substantial burden to the reorganized debtor. The Court’s Ruling Judge Isgur found that the discharge precluded Mr. Hoffman from continuing his suit against TB, but that he could continue to pursue his claim against the non-debtor employee. Judge Isgur found that “(i) In proceeding against a discharged debtor, a claimant may not recover damages from the debtor directly, nor force the debtor to incur ‘substantial’ defense costs.” Opinion, p. 6. Judge Isgur found that the remaining self-retention amount of $179,000 was in fact substantial.  Judge Isgur reached this conclusion by finding that the debtor was effectively uninsured for the first $500,000 of Hoffman’s claim. Opinion, p. 9. Another reason to allow the claim to proceed would be to liquidate it. Under 28 U.S.C. Sec. 157(b)(5), the bankruptcy court may not hear a personal injury or wrongful death tort claim. As a result, such claims must be liquidated in another court of competent jurisdiction. However, because the parties had already agreed that Mr. Hoffman had a claim for $250,000, the claim was already liquidated, and no further proceedings were necessary. The end result was that Mr. Hoffman had a claim against the reorganized debtor, which might be worth 5 cents on the dollar and the right to pursue the employee who harassed him. The claim against the non-debtor employee might give Hoffman an indirect claim against the debtor if the employee had a right to indemnification. However, based on the court’s reasoning, the non-debtor employee’s claim for indemnification may have been discharged as well. What It Means For many years, it was customary for motions to lift stay for the purpose of pursuing insurance to be granted as a matter of course. This was a win-win for both parties: the debtor would not have to deal with the claim in its plan and the plaintiff would be free to proceed with his suit. However, this assumes a traditional insurance policy with a deductible. Apparently, a self-insured retention functions differently. Since I am not an expert on insurance, I turned to the internet for an explanation. Here is what I found: Self-Insured Retention (SIR) — a dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss. Thus, under a policy written with a SIR provision, the insured (rather than the insurer) would pay defense and/or indemnity costs associated with a claim until the SIR limit was reached. After that point, the insurer would make any additional payments for defense and indemnity that were covered by the policy. In contrast, under a policy written with a deductible provision, the insurer would pay the defense and indemnity costs associated with a claim on the insured's behalf and then seek reimbursement of the deductible payment from the insured. For example, assume that two policies are identical, except for the fact that Policy A is written with a $25,000 deductible, while Policy B contains a $25,000 SIR. Also assume that defense and indemnity payments for a given claim total $100,000. In the event of a claim under Policy A, the insurer would pay the $100,000 in defense and indemnity costs that were incurred. After the claim is concluded, the insurer will bill the insured for the $25,000 in payments made on the insured's behalf. In the event of a claim under Policy B, the insured will pay the first $25,000 of defense/indemnity costs, after which, the insurer will make the additional $75,000 in defense and indemnity payments on the insured's behalf. Self-Insured Retention (SIR) | Insurance Glossary Definition | IRMI.com The thing to remember here is that insurance essentially is a contract. I do not have a lot of say in what insurance I purchase since my mortgage, my auto loans, and the State of Texas tell me what kind of a policy I must have on my home and cars. However, a company can negotiate for how much coverage it wants, as long as there are no loan covenants or state regulatory schemes requiring greater insurance. Thus, if a traditional insurance policy with a $25,000 deductible, covering losses up to $10 million per incident, costs $5 million and a policy with a $500,000 SIR, covering losses up to $10 million per incident, costs $2 million, it would make economic sense to go with the cheaper policy, so long as the company’s anticipated out-of-pocket expenses do not exceed the difference in premiums, which is $3 million in my example. (The numbers are completely made up for purposes of creating a hypothetical. I have no idea what large companies pay for insurance). Outside of bankruptcy, the company would pay its own litigation and settlement costs on routine cases and look to insurance to cover larger losses. However, once bankruptcy is filed, all the claims that would be the company’s obligation become unsecured claims and are less valuable. That still leaves the question of why the clause providing that the SIR would not apply if the company could not advance funds due to financial insolvency. It appears that TB was financially insolvent as shown by the fact that equity was wiped out and unsecured creditors received a small percentage of stock in the reorganized entity. However, the opinion does not appear to address this question. Practitioners dealing with similar issues should be aggressive in challenging whether the SIR applies in the bankruptcy context. Practical Considerations Insurance has gotten more complicated. As a result, personal injury attorneys (and the bankruptcy lawyers who assist them) should have an insurance expert on call to analyze the policy. Would this case have turned out differently if Mr. Hoffman and any other personal injury claimants in the same boat had filed an adversary proceeding against the insurance company to determine that the SIR did not apply? I do not know. Maybe they would have spent a lot of money litigating with the insurance company and still arrived at the same result. However, intuitively it seems like they might have obtained more bargaining power. In filing a proof of claim, personal injury claimants should consider listing the claim as unliquidated so that they can assert their right to liquidate the claim in a non-bankruptcy forum.  On the other hand, if the claim is relatively small and most likely will not be covered by insurance, it might make sense to file for a liquidated amount and accept whatever payment is provided. Personal injury claimants or their attorneys should take the time to read the plan before it is confirmed. A disclosure statement must address what will happen to pending litigation. If it does not, the claimant could object to the disclosure statement and confirmation of the plan and try to obtain a carveout from the discharge. One rule of bankruptcy is that people who object are listened to more than people who remain silent. Some plans will contain provisions releasing officers and directors. We do not know much about the employee who allegedly harassed Mr. Hoffman. However, if the harassing party was a high-level executive, the personal injury claimant should beware of third-party release provisions.