Chapter 7 and Student Loans

Student loans are not automatically discharged in a bankruptcy. It requires an adversary proceeding, which is a lawsuit within a lawsuit, in order to determine if student loans are discharged. The factors that have to be met make discharge of student loans relatively rare. However, that is not the purpose of this post. Rather, I wanted to explain what does happen to the student loans.

Once the holder of the student loan is notified of the Chapter 7, the loan is recharacterized in their computer system and no action will be taken until the bankruptcy ends. Sometimes the characterization of the student loan as in bankruptcy never gets changes back, which can cause problems later on. However, the debtor can still make payments on the student loan during the Chapter 7, but they will be provided a different address to send the payments. Unfortunately, this notice may take months to be sent out.

If possible, I recommend that the debtor continue to make payments voluntarily during the bankruptcy. This avoids the interest piling up and increasingly the total amount due. It also helps satisfy one of the factors if the debtor later attempts to discharge these loans, even if the payments are less than the full payment due.

Bitcoin and Bankruptcy

There is probably already a post out there regarding bitcoin and bankruptcy because it seems all the rage these days. However, I have not seen one, so I will claim the first. Perhaps though, it is because there is really only one thing to say about bitcoin and bankruptcy. As opposed to the complexity of every other aspect of bitcoin, this is really quite simple: bitcoin is an asset in a bankruptcy so it must be disclosed.

I hope that is sufficient explanation. Now that I think of it, though, there could be one rather challenging aspect of bitcoin and bankrupty: what is its value? There have been cases where a chapter 7 has been held open so long that the trustee went after the increase in value of exempted real property as part of the estate – with how volatile bitcoin is, one would need to calculate its value right when the petition is filed (be sure to preserve documentation of that value at that moment). Then, one would just hope the trustee does not seek after the gains towards the end of the bankruptcy.

However, I cannot imagine anyone who owns bitcoin is going to be filing bankruptcy anytime soon, so we have time to figure this one out.

My “best kept secret” practice

Most of my colleagues know that I find a tremendous overlap between practicing bankruptcy and practicing family law. One of the top reasons, if not the very top reason, for people filing bankruptcy is a divorce. However, I also have another practice area that fits well with both of these other practices and that is Family Law Mediation. I encourage you to please check out my other blog here at Bluegrass Conflict Resolution. Not only am I a trained mediator in this area, but my former career was focused on counseling and helping heal relationships. So, it is a natural extension that draws upon my skill set and experience.