Modification of Chapter 13 Bankruptcy Plans

When an individual files a Chapter 13 Bankruptcy,  that person will normally make monthly payments toward his or her debts for a period of 36 to 60 months.  At the end of the plan period the debtor will receive a discharge of debts, even though in most cases the plan payments cover less than 100% of the debts.

If the plan does not pay 100%  of the debts, the amount the Chapter 13 debtor pays each month must include all his of her available income determined under tests provided for in the bankruptcy code.  The tests are normally applied as of the date the individual files bankruptcy, and are then used to formulate a plan, which the court confirms,  for the entire 36 or 60 month period.

If there is a substantial change of circumstances the court can grant a motion to modify the plan.   A debtor frequently uses this provision to obtain a reduced payment,  if his or her income drops, or if there are certain significant expense increases such as medical costs.  Likewise a trustee or a creditor may bring a motion to increase the monthly payment based on a change of circumstances.

In what appears to be a break for debtors trying to save their homes a 2013 court case ruled that a mortgage modification, which reduced the debtors’ mortgage payment, could not be grounds to increase the Chapter 13 payment.  The court said that while an increase of income will justify a modification of the plan, the law does not allow a modification based on a decrease of expenses.

Are Income Tax Refunds Forfeited in Chapter 13 Bankruptcies

In most Chapter 13 Bankruptcies a debtor makes monthly payments for either 36 or 60 months based on the debtor’s income, and at the end of the term the debtor receives a discharge. Some Chapter 13 plans however also order the debtor to turn over his annual tax refunds to the plan during the term, which seems like a questionable practice under the law.

In most Chapter 13 plans the payments are based on the means test.  The means test is a mechanical formula which subtracts the allowable expenses from the debtor’s average monthly income to determine the payments that the debtor must make under the plan.  One of the expenses allowed in the means test is taxes, and according to the law the debtor should use  her actual tax expense rather than the withholding from one’s paychecks.  Thus the monthly payment should already be adjusted to reflect an annual tax refund or a balance due on one’s tax return.

The problem is that projecting what a future tax expense will be is always an estimate, which can vary in accuracy depending on the tax expertise level of the lawyers, the trustees, and the judges involved in the case.  Some bankruptcy judges have thus decided that as a practical matter the estimate will be made more accurate, if the debtor is required to pay his or her annual tax refund into the plan in addition to the monthly payments, and in fairness to the judges this is probably correct at least some of the time.

Unfortunately, this practice is not uniform and an individual filing a Chapter 13 Bankruptcy will often not know whether they will be required to make this extra payment until the plan is confirmed.  About the best they can do is ask their bankruptcy attorney for an opinion, who will probably make a better guess, since he or she is normally familiar with the local judges and trustees, but this too is only an estimate.    

Dissipation of Assets In Divorce.

Sometimes when a marriage is breaking down one of the spouses will be careless with the property acquired during the marriage.  Classic examples include the husband giving away their investments to members of his family, or the wife footing the bill for an exotic vacation with her new lover.  There are also less fragrant examples, such as the spouse occupying the home failing to keep up mortgage payments after the couple has separated and he or she suddenly finds it harder to pay the bills when they are now maintaining two households rather than one.

In divorce law this is known as dissipation of property, and when it occurs the divorce lawyer of the injured spouse will try to make his or her client whole through the final judgment.  If a court finds that one spouse has dissipated assets it can order a division of the marital property that will subtract the amount that the wrong doing spouse dissipated from his or her share of the settlement.

As one can imagine disputes over dissipation can become nasty.  A spouse who has acted out of animosity in wasting the assets is not likely to readily agree to reimburse his spouse for the losses.  Also dissipation is one of the accusations a party looking for a fight is likely to make against his or her spouse with a very weak factual basis.

Review of Credit Reports by Employers

As a bankruptcy lawyer I often hear clients express concern that, if they file bankruptcy, their employers will fire them. I can in this case point out that it is illegal for an employer to take action against an employee for filing bankruptcy, which I believe is a law most employers, who obtain legal advice on employment matters will follow. However, some people still express fear that their employers will merely deny that bankruptcy was the real cause of the hostile action against the employee. Senator Elizabeth Warren from Massachusetts has just introduced a bill that could also make it illegal for an employer to look at an employee’s credit report in making hiring or firing decisions. This would of course strengthen the protection, because if employers cannot look at credit reports, they are less likely to even know the employee filed bankruptcy. Since January 1, 2011 Illinois has had a similar law barring employers from considering credit reports although the Illinois law has a number of exceptions.

Pursuing Child Support Against Bankrupt Debtor

When an individual files bankruptcy an automatic stay goes into affect which forbids a creditor from taking action outside the bankruptcy process to action to collect a debt. The creditor cannot call or write to the debtor demanding payment, pursue a collection action in court or garnish the debtor’s wages or property. Domestic support obligations, including child support and spousal maintenance are somewhat of an exception to the automatic stay. Thus while a credit card company with a judgment against an individual would have to cease garnishing the person’s wages on the day the bankruptcy is filed, an order to withhold child support from the individual’s wages would continue in effect. The law makes some subtle distinctions however that could create pitfalls for someone who aggressively pursues these debts without consulting a bankruptcy attorney . For example the bankruptcy law allows the custodial parent to bring a motion to establish or modify child support during the payor’s bankruptcy, but an action to hold the debtor in contempt of court for past unpaid child support would be a violation of the automatic stay. This of course does not mean that the delinquent child support is discharged by bankruptcy, only that certain actions to collect the support are not allowed while the bankruptcy is pending.

Social Security Income And Chapter 13 Bankruptcy Payments

In a Chapter 13 bankruptcy the debtor’s monthly payments toward his or her debts are usually determined by the bankruptcy means test.  The means test is a mechanical calculation that takes the debtors average  monthly income and subtracts out allowable expenses.  For most expenses such as food, clothing and utilities the amount of allowed expenses is a specific allowance.  For some expenses such as taxes, mortgage payments, and child support the debtor’s actual expenses are used.

The Bankruptcy Code specifically excludes Social Security from income in the means test, and therefore most Chapter 13 debtors will not have higher payments, because they are receiving Social Security.  There is another provision in the law however that allows the trustee to ask for higher monthly payments, if a debtor is spending unreasonably high amounts on his or her living expenses.

The question thus arises, what happens, if the living expenses are too high, but the debtor is paying for these out of Social Security.  For example, what if a man spends $600 a month of his Social Security eating dinner every night in a nice restaurant, when the means test only allows him a $315 a month food allowance.

From what the courts have said the man will not have a problem.  Social Security must still be subtracted in calculating how much income the debtor would have available to make Chapter 13 payments, if he or she was only incurring reasonable expenses.

Marital Deduction For Married Debtors Filing Individual Bankruptcy


While the bankruptcy law allows married couples to file joint bankruptcies, this is not a requirement.  A married person may also file an individual bankruptcy, and as a bankruptcy attorney  I see some cases when this is advisable.

One advantage to the individual bankruptcy is that the filing spouse might be able to lower the required payments under a Chapter 13 bankruptcy or even qualify for a Chapter 7 bankruptcy, because the other spouse is retaining his or her debts.

What usually determines the size of a debtor’s payments in a Chapter 13 plan is the “bankruptcy means test.”   This calculation is done on a household basis regardless of whether both spouses are filing.  The test takes the average monthly income for the household and subtracts out the expenses, which the bankruptcy law allows, to determine how much a debtor has available  to pay each month toward his or her debts under a Chapter 13 Bankruptcy plan.  If the available income is low enough, the debtor will qualify for a Chapter 7 Bankruptcy, which requires no monthly payments.

In the case of the married debtor filing alone the means test also includes the so called marital deduction.  This is the amount that the non filing spouse will be required to pay toward his or her debts during the next five years.  While this amount might be discharged, if the spouse joined in the bankruptcy, by opting out these debts remain a necessary household expense with the result that the individual payment toward a bankruptcy plan can be significantly smaller than a joint payment would be.

Net Operating Losses And Bankruptcy

As a bankruptcy lawyer  I often encounter people who need to file bankruptcy, because of losses incurred in the operation of a business.  Since the Internal Revenue Code allows taxpayers, whose business expenses exceed their business income, to carry unused losses backwards and forwards as deductions in other tax years, one might wonder if it is possible to discharge one’s debts in bankruptcy and then take advantage of the tax deductions for the losses that drove one to bankruptcy to reduce future tax liability .

The short answer is that this is not very likely to happen.

As a general rule the cancellation of debt creates taxable income.   Debt discharged in a bankruptcy is an exception to this rule, however, the taxpayer is required to reduce any unused net operating loss by the amount of cancelled debt that escaped taxation in bankruptcy.  And if the cancelled debt exceeds the net operating deduction the taxpayer might then have to reduce other tax attributes, such as capital loss carryovers, business tax credit carryovers, and their tax basis of property.

Of course it is possible that the net operating loss deduction could exceed the amount of debt cancelled in bankruptcy, and then some of the carryover deduction would still be available for later years.  This could happen for example if the taxpayer invested a large amount of capital in the business rather than having relied mostly on debt financing for the enterprise.

Do Chapter 13 Bankruptcy Plans Have to Last For Five Years

 Prior to the bankruptcy law overhaul in 2005 most individuals filing a Chapter 13 Bankruptcy  were only required to make plan payments for 36 months to receive the discharge. The 2005 law however added a requirement that debtors with above medium incomes had to enter a plan where the payments continue for 60 months, and only those debtors, who had below medium incomes can still file 36 month plans.  The medium income is based on the state the debtor resides in.  In Illinois the medium income for a family of four as of August 2013 is $6,731.00 a month or $80,776.00 a year (this is gross income not net income.)

Of course both before and after the law change debtors, who were eligible for the 36 month plan, often elected a longer plan period, because they could not afford to make large enough payments in 36 months to achieve their goals.  This could apply for example, if an individual was trying to stop a mortgage foreclosure through a chapter 13 plan, and the arrearage on the mortgage was too large to pay off in less than 60 months.

There is also an exception to the rule allowing debtors to shorten their plan term to whatever period it takes to pay off 100% of their debts; however, it is an unusual case for an individual, who is filing bankruptcy, to be able to pay off all of his or her debts in a shorter period than the law requires.

 Automatic Stay For Co-Debtors In Chapter 13 Bankruptcy

 The automatic stay in bankruptcy makes it illegal for any creditor to take action to collect a debt while an individual is in bankruptcy.  A bill collector cannot call the individual on the phone, take the debtor to court, or garnish wages while the bankruptcy is pending.

One advantage of a Chapter 13 Bankruptcy  is that the automatic stay can also cover a co-debtor who has not filed for bankruptcy.  Thus if a man cosigns for his daughter’s car loan, and the daughter goes bankrupt, the car lender would not be able to come after the father, if she filed under Chapter 13.  If it were a Chapter 7 bankruptcy the man would have no such protection.

There are several conditions for the automatic stay to apply to the co-debtor.  The co-debtor must be an individual, and the loan must be a consumer debt.  In addition the creditor could have the automatic stay lifted, if the co-debtor was the one receiving the consideration for the debt, or if the Chapter 13 plan did not provide for the full payment of the debt.  However, lifting the automatic stay requires the creditor to bring a motion to court and request this relief from the judge.

Taxation of Debt Forgiveness And Insolvency

The Internal Revenue Code provides that a cancellation of indebtedness is taxable income. Thus if you settle a $10,000.00 credit card debt for $5,000 you will have to pay income tax on the $5,000 forgiven.

Like most general rules this one has exceptions.   One exception is that a debt discharged in bankruptcy will not produce taxable income, and as a bankruptcy lawyer  I can say that without this rule very few debtors would actually receive the fresh start that bankruptcy is intended to confer.

Even if one does not go bankrupt though the forgiveness will not be taxable, if the debtor remains insolvent.  Thus if after the $10,000 is forgiven the debtor still has $30,000 of additional debt and has no property there will be no taxable income, because the debtor is still insolvent by $30,000.

One pitfall that is sometimes overlooked though is that the insolvency calculation requires the taxpayer to include  some items that he or she might not normally think of as property, such as assets in a 401k or a pension plan.  In trying to figure out if someone is insolvent with a pension one would of course have to figure out the present value of future pension benefits which very few people know how to do.  Unfortunately, some judges have even thrown out the insolvency exception just because the debtor had a pension that he was unable to calculate a value for.  The theory was that unless they could show the value of the pension the taxpayer would be unable to meet his burden of proof that he is indeed insolvent.












 

Paying Taxes Due After Filing Chapter 13

One reason people file a Chapter 13 bankruptcy  is that it provides a convenient mechanism for paying debts to the IRS that would not be discharged in a Chapter 7 bankruptcy, such as income taxes that are less than three years old.   The Chapter 13 debtor will be able to spread the payments over five years, and in most cases no additional interest will accrue after the filing date of the bankruptcy.

In some cases a taxpayer will even want to add income tax liabilities to the Chapter 13 bankruptcy plan, which fall due after the bankruptcy is filed.  For example if an individual files bankruptcy in November of 2012 and has a large balance due, when he files his 2012 tax return the following April, he may wish to amend his bankruptcy plan to also pay off his 2012 liability.

This is permissible under the law,  and it can  make sense to a debtor who is struggling already to keep up his plan payments and has little hope of coming up with the funds to pay the 2012 taxes with his return.  One thing to keep in mind in this case though is that because they fell due after the bankruptcy,  the 2012 taxes will continue to accrue interest on the unpaid balance during the bankruptcy.  Thus while the debtor will avoid harassment from the IRS and will probably reduce his total interest by doing it this way, he will often exit bankruptcy with unpaid interest still due to the IRS.

Chapter 13 Bankruptcies Following Chapter 7

By law an individual who receives a discharge in a Chapter 7 Bankruptcy
must wait 8 years before filing another Chapter 7 Bankruptcy that will lead to a discharge.

 Financial problems however do not always wait until an individual meets the requirements of the Bankruptcy Code, and sometimes an individual accumulates new debts too quickly to wait for 8 years. One option that offers some relief in this situation is a Chapter 13 Bankruptcy.

 A Chapter 13 of course requires the Debtor to make monthly payments to pay off part of the debt, and thus this alternative may not be feasible for individuals in deep financial distress. It is also true that the Debtor must wait 4 years to file the Chapter 13, if he or she is going to receive a discharge.

This is an important distinction. A Debtor in fact may file a Chapter 13 Bankruptcy right after the Chapter 7 is discharged, but in this case he will not receive another discharge. There are some limited circumstances, where it makes sense to file the bankruptcy without receiving a discharge, such as to stop a mortgage foreclosure. However, in most cases the individual seeking bankruptcy relief has other debts which need a discharge, and in this case she will need to wait 4 years after the Chapter 7 before filing a Chapter 13.
　

Taxability of Gambling Income

As a bankruptcy lawyer I sometimes encounter individuals, who have suffered gambling losses, which have contributed to their financial difficulty. Gambling can also lead to adverse tax consequences however; which many taxpayers do not realize are coming.

Under the Internal Revenue Code gambling winnings are taxable income and gambling losses are deductible but only to the amount of gambling winnings, so such losses cannot be offset against other income. Furthermore, the losses are taken on an individual’s tax return as an itemized deduction which further limits their value.

For one thing the gambling losses can only be deducted, if they occur in the same tax year as the winnings. Whether it falls into the category of urban legend or whether it really happened, every accounting major has probably had heard the story of the high roller who went to Las Vegas over the Christmas holidays, and won a million dollars playing Blackjack on New Years Eve, but lost it all back the next day, when he returned to the casino for one more try. Not only does this fellow return home broke, but since the big events were in two different years, he owes the IRS tax on one million dollars of income.

Another problem with only receiving an itemized deduction is that the taxpayer frequently loses this benefit when he or she files state returns. The gambling income is taxed by the state, because it is part of adjusted gross income, and since many states do not employ the concept of itemized deductions, the income will remain taxable by the stated, even if the individual’s losses from other ventures to the casino surpass his gains.

Will A Bankruptcy Discharge A Judgment Lien on Your Home

        When a debt is dischargeable in bankruptcy, it does not matter whether an individual files her bankruptcy before or after the creditor obtains a judgment in court. The debt is still dischargeable. However, as a general rule a lien on property is not removed by bankruptcy, and as a bankruptcy lawyer I frequently have to deal with creditors, who obtain a judgement against a person, and then record a judgement lien against the individuals house.

        If the person owing money in this situation files bankruptcy, the creditor will never be able to make the debtor pay the money, but the lien remains on the house. While holders of judgment liens seldom find it worth the cost to file a foreclosure action against the property, if the homeowner sells his property, while the lien is still in affect, the lien will show up on the title report, and the debt will have to be paid off out of the proceeds of the sale.

       In some cases though a bankruptcy can remove a judgement lien. Under Illinois law an individual is entitled to a $15,000.00 homestead exemption from creditors in the equity of his or her home. If payment of the judgement lien would come out of the homestead exemption, because the debtor has no more equity in his home, the homeowner can bring a motion in bankruptcy court to have the lien removed.

Should A Bankrupt Debtor Sign a Reaffirmation Agreement

When an individual files bankruptcy the discharge applies to secured debts, such as home mortgages and car loans, as well as to unsecured loans such as medical or utility bills. In most cases though the lender retains any security interest it has in property after the bankruptcy. Thus if you go bankrupt and fail to make your car payments, the lender can repossess the vehicle, but since the debt was discharged it can not come after you for additional funds, if the sales price on the vehicle is less than the outstanding loan.

Sometimes the debtor wants to keep a house or a car and will continue to make the payments for this reason. In a Chapter 7 bankruptcy the lender and the borrower can enter a reaffirmation agreement, which makes the debt fully enforceable just as if the debtor had never filed the bankruptcy. The debtor in that situation will sometimes ask his bankruptcy lawyer whether signing th reaffirmation agreement is a good idea.

The first point to consider in this situation is whether the lender will insist on the reaffirmation agreement. At least in the case of a loan secured by personal property the lender can require the debtor to sign the reaffirmation agreement as a condition of keeping the property. Most secured lenders though seem happy to accept the payments whether or not there is a reaffirmation agreement and in this case the borrower will still own the property once the loan is paid off.

If it is the debtor’s decision there are several factors to consider before one reaffirms. The big disadvantage of signing the reaffirmation agreement is that, if the debtor fails to keep up the payment the lender can still collect a deficiency after the property is repossessed, if it sells for less than the amount owed. For this reason a bankruptcy court will not even approve the reaffirmation agreement, if the judge believes keeping up the payments will create a hardship. The advantages of signing the reaffirmation agreement are that the lender can then send you monthly statements to help you keep track of when payments are due. Furthermore, if you pay off a secured debt that has been reaffirmed it will show positively on your credit report.

Rescinding Reaffirmation Agreements in Bankruptcy

Although a Chapter 7 Bankruptcy will discharge secured debts such as a home mortgage or a car loan, many debtors are willing to continue making the payments so they can keep the property. In this situation the bankruptcy law allows the debtor and the creditor to enter a reaffirmation agreement, in which the debtor agrees to continue making the payments, and the creditor allows the borrower to retain the property.

At times though debtors, who have become attached to their house or their car, or even in some cases to a boat or a camper, will sign the reaffirmation agreement and later realize that they made a financial mistake.

Homeowners, may be upside down on their mortgage, but will agree to reaffirm, because they like where they are living, and they are still carrying the hope in their hearts that the real estate market will make a comeback, and the house will turn out to be a good investment.

While the debtors do not have an unlimited option to change their mind, the law does allow them a limited window of time to cancel the agreement and still receive a discharge on the debt. The borrower may rescind the reaffirmation agreement within the later of the bankruptcy discharge date or 60 days after the reaffirmation agreement is filed with the court.

To exercise this right the debtor merely has to give notice to the lender within the rescinding period.

New Illinois Supreme Court Rules on Foreclosure

On May 1, 2013 new Illinois Supreme Court Rules go into affect that are designed to stop some of the abuses of the foreclosure process by the mortgage industry, which will hopefully prove a great benefit to individuals attempting to save their homes.

The new rules require that banks and mortgage companies seeking to foreclose on homes file additional disclosures with the court in order to obtain a judgment. The rules for example require that the lender attest that they have complied with the any applicable loss mitigation programs and to provide greater disclosure of the actual records the mortgage company has used in making their allegations of how much the homeowner owes under the mortgage.

The new rules should make it harder for homeowners willing to defend themselves in court to lose their property based on the boiler plate statements in the standard foreclosure complaint filed with the court. In the past these generic documents have made it difficult for the defendant in the court case to know, if the statements the mortgage company in making are accurate or not, and the supplemental disclosures required by the new rules should prove a relief to those attempting to save their homes.

Should Bankruptcy Be Filed Before Or After Divorce

As the old saying reminds us "When it rains it pours," and this principal is sometimes demonstrated by people ,who need to file bankruptcy, while they are also going through a divorce. Whether the financial problems contributed to the marital difficulties or the marital breakup aggravated their inability to balance the family budget, the couple often face the practical question of whether they should file for bankruptcy before or after they complete the divorce.

There are several factors to take into consideration in making this decision.

By filing bankruptcy first a couple can often eliminate most of their debts, and since the parties no longer have to argue about which spouse will be responsible for which debt this can simplify the divorce process. Also as long as they are still married a couple can file a joint bankruptcy rather than two individual bankruptcies, which can cut their bankruptcy court costs and attorney fees in half. This fee reduction can result in a significant savings for people under financial stress.


On the other hand the law requires that individuals with larger incomes file a Chapter 13 Bankruptcy rather than a Chapter 7 Bankruptcy which can prove far more expensive for the Debtor.
This determination is made by a mathematical formula known as the "means test".  Since the means test is calculated based on the income of the household, the result will be different before and after a couple separates, and the Debtors can sometimes avoid the Chapter 13 by waiting

Is Exempt Property Always Safe In Bankruptcy


One thing a bankruptcy lawyer will always point out to his or her clients is that a certain amount of property is exempt from creditor claims.  Under Illinois law probably the most commonly used exemptions are the $15,000.00 of equity in one’s home, the $2,400.00 exemption for a vehicle, the $4,000.00 general
personal property exemption, and the exemption for qualified retirement savings such as IRAs and
401Ks.

However, some courts have allowed the bankruptcy trustee to take exempt assets away from
debtors under certain circumstances.  One situation that has appeared in several reported cases is
when debtors have improperly failed to disclose certain assets on their bankruptcy petitions.
Although not all bankruptcy courts have agreed with the treatment, some of these decisions have
allowed the trustee to take the debtor’s exempt assets to pay for the damages caused by the
omission.

One should note that omitting assets is generally considered fraud and the courts have
justified this treatment under provisions of the Bankruptcy Code designed to punish misconduct.
Thus hopefully the honest debtor does not need to fear this could happen to him.  

Will IRA Withdrawals Disqualify A Chapter 7 Bankruptcy

As a bankruptcy lawyer  one of the biggest concerns I hear from my clients is the possibility that they will not qualify for a Chapter 7 bankruptcy and will have to file under Chapter 13 instead.

Since 2005 the bankruptcy law has contained a mathematical formula, calls the means test, which generally determines, if debtors will have enough income to pay back part of their debts and will thus have to file a Chapter 13 and make monthly payments.

The means tests takes a household’s average income for six months and subtracts out what the law considers reasonable expenses to determine whether the debtors can still afford to pay some debt.

Unfortunately, many individuals in financial difficulty end up liquidating their retirement accounts, such as 401Ks or IRAs in an attempt to avoid bankruptcy, and if they end up having to file anyway, the question is whether the withdrawals they made within six months prior to filing will be treated as income in the means test and thus force them to file under Chapter 13.

Fortunately, when the issue has been raised the courts have tended to take the position that the Debtor’s action was more like the withdrawal from a savings account, and that it should not be counted as income for this purpose.

Special Use Valuation In Estate Taxes

For estate tax purposes property is taxed at fair market value, which means that the value is set based on the mostprofitable use for the property.  For example if your vacation cottage on a serene lake in Minnesota
is worth $50,000.00 to someone who wants to continue taking fishing trips to the cottage like you
did, but an oil company wanting to strip the earth for tar sands is willing to pay $250.000 for the
land, the value for estate tax purposes will be $250,000.

There is an exception however that principally applies to family farms but can also be used for
other real estate used in a business. The exception allows the property used in the farm or business
to be valued at its current use with a reduction of up to $1,070,000 from what the real estate would
sell for, if it was put to its highest and best use.

For the exception to apply the real estate must be located in the United States and the decedent
must leave it to qualified heirs, which would be a spouse, direct descendants, or the spouse of a
direct descendant.  Both the decedent and the qualified heirs must materially participate in the
operation of the business, or in other words they must be out working the farm rather than merely
renting out the farm land.

Student Loan Discharge In Bankruptcy

As a bankruptcy lawyer I frequently run into a dead end when I try to help people with large student loans . The law says that student loans cannot be discharged in bankruptcy unless the student loan will create an undue hardship, and even though there are countless individuals, who have graduated with degrees that offer them little hope of ever repaying the huge student loans that were necessary to complete their education, bankruptcy courts have been very tough in recognizing that any debtor ever meets this standard.

However, a decision that came down from the Seventh Circuit Court of Appeals in Chicago on April 10, 2013 seems to offer some hope for those needing more reasonable treatment. In the case of Educational Credit Management Corp. v. Krieger the court allowed the discharge of $25,000.00 in student loans for a paralegal in her fifties, who had been making every effort to repay the loan in the eleven years since she has taken out the loans and had no hope of repaying it based on her income.

In doing so the appellate court rejected the concept that the lower court had embraced, that this was not enough for a discharge, unless the debtor could also prove that she had no reasonable prospects of improving her income in the future, a standard that just about anyone would find impossible to meet.