Student Loans Non-Dischargeable to Parent -Debtor

Student loans used to be dischargeable and many people forget that they are now non-dischargeable due to changes in the law. Everyone attending higher education should be reminded several times before signing these notes that they are non-dischargeable and the same rules apply to the co-applicant or guarantor.  In a recent case  In Re: Curvtis V. and Connie S. Vitzhum,, 22 CBN 1, 2011 Wl 3957273 (Bankr W.D. Mo 9/7/11); Consumer Bankruptcy News October 13, 2011, vol 22 iss 1 ).  the parent, signed for a student loan along with their daughter  through Educap Inc. in October 2005 for their daughter’s college education.

Pursuant to Section 523(a) (8) student loans or loans to be used “for educational purposes only” are non-dischargeable. In the reported case, the parents applied along with their daughter for loans issued for her college education. . The daughter attended college and the parents fell on hard times and were forced to file bankruptcy. Since they were not the student under the loan they tried to have it discharged claiming that they did not receive any educational benefit. The court disagreed and said it did not matter,  that it still was an educational loan and therefore non-dischargeable.

The point of this case  is that student loans are almost never dischargeable to anyone who signs them regardless of whether they were the student are not. Until Congress changes this rule, it is the law of the land.  In today’s world with a year of private college costing more than $40,000 it is easy for students to get themselves in a great amount of debt.  Parents and students should know that they will be tied to with this debt until paid and bankruptcy will not remove it.

If you have any questions regarding this or other bankruptcy matters, please call me at 1-888-382-7880.

A bankruptcy Art dealer who plead guilty to 1 count of bankruptcy fraud was apprehended after 5 years on the run. His crime involved transferring ownership of an oil painting to another person to sell and conceal the sale proceeds. First he failed to report to jail in 2004. Then he fled abroad while the U.S. Marshals were tracking him through 14 countries including China. Ultimately he was arrested in Rome in 2009. Released on house arrest he fled Italy to Mexico and was deported back to the United States (Consumer Bankruptcy News August 18, 2011, v 21, iss18).

It’s important to note how diligent the U.S. Marshals were in apprehending him. Bankruptcy fraud is a federal offense and taken very seriously by law enforcement. People filing bankruptcy often think they can get away with transferring assets on the eve of Bankruptcy. People often ask can they transfer their house to their son or daughter or give away assets and then file bankruptcy. The obvious answer is no and taking such action can make a difficult situation much worse and turn a civil action into a criminal one. So for those contemplating bankruptcy, the advice is not to transfer any assets. Leave things the way they are and get competent legal advice. Do no turn a civil matter into a criminal one.

Several Congressmen have been receiving inquiries from their constituents about the legality of deducting expenses incurred when selling marijuana for medical purposes. (See Practitioners TaxAction Bulletin No. 2011-18 p4.) The IRS has responded with a series of informational letters. Under the Internal Revenue Code Sec 280E disallows deductions incurred in the trade or business of controlled substances of which marijuana of course falls into. There is no exception for medical marijuana neither under either the code nor under Controlled Substances Act. In order for the IRS to publish formal guidance would necessitate Congress to change the Controlled Substance Act or Internal Revenue Code.

It doesn’t seem likely given the current political atmosphere and public attitude that Congress will make the necessary changes. I believe that is too bad, because if it were allowed into the code it would be one further step to full legalization and taxation of marijuana and surely would help take the criminal element out of the trade and of course generate additional revenue to bridge the current large and getting larger budget deficit.

Sun Capital Partners the parent company of big name chains such as Chevy’s, Friendly’s and Boston Market and El Torito filed for bankruptcy on October 4th., as reported by the New York Post (October 5, 2011, p 32.) Also, Sun also owns the Friendly ‘s chain which is expected to file later this month. This is just one of many recent filings for the restaurant industry as 5 chains with at least 100 locations have filed for bankruptcy.

Despite these woes, the principal of the company Marc Leder was reported to be throwing wild parties in the Hamptons with a pool full of nude guests performing sex acts.

Is the start of more chains and major national brands to go into bankruptcy? I would not be surprised with this economy. There is talk that American Airlines maybe on the verge of bankruptcy. However, it is not necessarily the end of these companies and may serve to strengthen them. For instance General Motors and Chrysler were able to reduce debt, renegotiate labor contracts, and close unprofitable plants. They had been unprofitable for several years prior to the bankruptcy. General Motors continue to make cars and has reported profits and new increased labor contracts for its workers. So Chapter 11 for large companies is not necessarily a bad thing if they are able to restructure and come out of the process more streamlined

In an interesting case recently reported in (Consumer Bankruptcy News, vol.21, iss19, p, 3) involving both the bankruptcy and criminal laws , a person who had been first granted a Chapter 7 discharge claiming to be unemployed and having no income was  arrested 5 months later. and charged with possession of and trafficking in crack cocaine.

The Office of the US. Trustee which oversees the bankruptcy process tried to reopen her case and have her discharge revoked based on fraud.  The debtor was subsequently found guilty on several criminal counts including delivery of a controlled substance, criminal conspiracy, and child endangerment.

Despite the US Trustee  introducing  the criminal evidence into the bankruptcy proceeding, the Court found that the US Trustee hand not proved that the debtor actually derived income from these transactions during the pre-bankruptcy period and allowed the discharge to stand. U.S. Trustee v. Shiloh (In re: Lisa L. Shilo), 21 CBN 1025, 2011 W. 3204915 (Bankr. M.D. PA 7/26/11)

Over the years York State Department of Taxation has had a difficult reputation for approving offer in compromise as compared to the Internal Revenue Service. This may
be changing. The program allows for compromise when the the taxpayer is “not insolvent or bankrupt.

See link:  http//tax.ny.gov/enforcement/collections/oic.htm

The Internal Revenue Service is providing tax relief to individual and business taxpayers impacted by Hurricane Irene.

The IRS has announced that certain taxpayers in Connecticut, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Puerto Rico and Vermont will receive tax relief. Other locations are expected to be added in coming days following additional damage assessments by the Federal Emergency Management Agency (FEMA).

The tax relief postpones certain tax filing and payment deadlines to Oct. 31, 2011. It includes corporations and businesses that previously obtained an extension until Sept 15, 2011, to file their 2010 returns and individuals and businesses that received a similar extension until Oct, 17. It also includes the estimated tax payment for the third quarter of 2011, which would normally be due Sept. 15.

Full details, including the start date for the relief in various locations and information on how to claim a disaster loss by amending a prior·year tax return, can be found in tax relief announcements for individual states.

The tax relief is part of a coordinated federal response to the damage caused by the hurricane and is based on local damage assessments by FEMA For information on disaster recovery, individuals should visit the government’s disaster assistance website.

So far, IRS filing and payment relief applies to the following Northeastern counties and municipalities:

• New York: Albany, Clinton, Delaware, Dutchess, Essex, Greene, Montgomery, Nassau, Orange, Otsego, Rensselaer, Rockland, Saratoga, Schenectady, Schoharie, Sullivan, Suffolk, Ulster, Warren and Westchester
• Connecticut: Fairfield, Hartford, Litchfield, Middlesex, New Haven, New London, Tolland and Windham
• New Jersey: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren
• Massachusetts: Berkshire and Franklin