All items from Nebraska Debt and Bankruptcy Blog

A recent ruling by the Nebraska Bankruptcy Court underscores one of the primary differences between the treatment of divorce debts in Chapter 7 and Chapter 13 cases.  (See In re Schulz, Nebraska Adversary Case #12-04070).
On August 30, 2011, the District Court for Buffalo County, Nebraska entered a divorce decree that included a division of marital property and debts requiring Cynthia Shultz to pay her ex-husband $25,000.  One year later Ms. Schultz filed Chapter 13 bankruptcy.  Although Mr. Shultz filed an unsecured Proof of Claim for $24,104.27, he failed to object to the Chapter 13 plan which was eventually confirmed by the Court on June 5, 2012.

Reading the opinion just issued by the Bankruptcy Appellate Panel for the 8th Circuit in the case of Shaffer vs. Iowa Student Loan Liquidity Corporation, I am wondering if we are now witnessing a greater willingness of the bankruptcy courts to discharge student loans. 
Susan Shaffer is a single woman in her 30s with no dependants. She apparently suffers from mental health issues including eating disorders, depression, anxiety and self-harm (cutting).  She acquired $204,525 of student loans while obtaining a degree in psychology in 2002 and attending chiropractic school before dropping out in 2008.  She worked for a time as a revenue specialist before leaving that job after suffering bouts of depression.  After filing bankruptcy she found employment in the radiation oncology department at the University of Iowa.

Sometimes simpler is not better.  Sometimes cheaper is more expensive in the long run.  Those thoughts occurred to me after meeting with a new client regarding her financial problems.  The client, a 61-year-old single women earning $14 per hour, was struggling to pay $9,000 of credit cards.   Her income had declined after a change in jobs and there was simply not enough money left over to pay the credit cards after paying the mortgage, utilities, the car payment and a home equity loan she obtained to pay off previous credit card balances.
On the surface, this was an easy Chapter 7 case.  I say that because she was well below the Nebraska median income level of $40,429 and she had no unprotected assets.  To file Chapter 7 a person’s income  cannot be too high and they can protect only so many assets.  This client had no problems with either of these issues and I believe most attorneys would have recommended that she file Chapter 7 to alleviate the monthly credit card payments. 

this client did not belong in a Chapter 7 case and the cheapest attorney hired would probably be the most expensive choice in the long run

I had coffee with a great friend of mine who began his own bankruptcy practice a few years ago.  He explained that he recently acquired a very difficult case involving a debtor with a high paying job and he expected a brutal Chapter 13 confirmation process—i.e, he expected the Trustee to demand a significant monthly payment.  Apparently the debtor had bad luck in a business venture and was now deep in SBA loan debt requiring a bankruptcy despite his job that paid a six-figure salary.  As I continued to question my friend about the nature of his client’s debt, it became clear that the majority of his debt came from the business failure.  The good news for my friend and his client is that there would be no brutal Chapter 13 confirmation hearing.  In fact, there would not even be a Chapter 13 case at all.