Does this mean the US Trustee is involved?

[TeacherMomma]

So we got a letter this week from the "Paralegal Specialist" from the Office of the US Trustee, asking for our 2008 tax returns, paychecks back to Nov 08, and documentation of my student loans that I listed as a special circumstance. In the letter it says they need the first two items to calculate out "Current Montly Income" and that they need to see what the payments are on the student loans to determine if the presumption of abuse arises. No biggie, I provided them all the documentation today. We are well above median, but with the student loans we are in the negative.
But is this standard, or does this mean the big guy is involved in my case now? I had to bring the documents to the Office of the US Trustee in my area, which is obviously not where we filed the BK. (we are pro se) The letter arrived Tues of this week and said he needed this by Sunday (yes, Sunday, weird).

Our 341 is 6.22.08

So anyone have this happen? Is it standard?

[justbroke]

If it's from the U.S. Trustee themselves, and not the Standing Trustee, then the UST is interested in your case. However, the mere request fore documentation doesn't mean you won't get your discharge. It does mean, however, that the UST is interested in how you calculated your current monthly income.

As you've already done so, please make sure you keep up with any documentation requests. Being over the median, almost always invites the UST to take a look into whether your filing is an abuse under the Bankruptcy Code. Since you indicate you filed pro se, I will ask you a couple of questions.

How much unsecured debt are you trying to discharge?

If you couldn't claim the student debt payments, would you have a positive "disposable monthly income"?

[TeacherMomma]

99K is the credit card debt we are trying to discharge.

If we are not able to claim the student loans, on the means test we would have positive income yes. But if not, then between that and the CC debt we are way in the negative. I was 99% sure we would invite some scrutiny, and that is ok with me, in order to pay back the student loans, we need the CC debt out fo the way....it is that simple. Since BK code won't allow the SL debt to be wiped and treats them as priority debt (then they should act like priority debt and have better forbearance programs IMO), something has to give. The attys we consulted with said we should list the SLs as the special circumstance, and hope they will let it slide....or feel sorry, LOL....it is almost 400K in SL we are talking about here.

[justbroke]

These are my thoughts and remember I am not a lawyer and certainly don't represent you. My personal views seem to always be that from the Trustee's perspective, so they may seem... harsh.

99K is the credit card debt we are trying to discharge.

Well, that's $100K in my book, and the UST is most interested in (Chapter 7) cases where there is $100K or more of unsecured debt being discharged, regardless of whether you are over or under the median. Quite simply and plainly, they wonder if you abused your credit.

If we are not able to claim the student loans, on the means test we would have positive income yes. But if not, then between that and the CC debt we are way in the negative.

First, they never count "paying" on unsecured debt as a necessity in their calculation. I see that you may have some issues, but you won't know until the Trustee actually files their "10-day" presumption of abuse statement (within 10-days after the 341 Meeting), or some motion to dismiss for abuse under 707(b) of the Bankruptcy Code.

I was 99% sure we would invite some scrutiny, and that is ok with me, in order to pay back the student loans, we need the CC debt out of the way....it is that simple. Since BK code won't allow the SL debt to be wiped and treats them as priority debt (then they should act like priority debt and have better forbearance programs IMO), something has to give.

Student loans are always interesting. Perhaps you took a deduction (on your Schedule J) for student debt repayment... and they want to remove that from your expenses (on Schedule J).

The attys we consulted with said we should list the SLs as the special circumstance, and hope they will let it slide....or feel sorry, LOL....it is almost 400K in SL we are talking about here.

The key is that while special circumstance is not defined in the Code, it does list two examples of special circumstances. One was medical and the other was military duty. So, loss of ability to work (permanently) would qualify as a "special" circumstance.

With $400K in student loans, you must have a Ph.D, Sc.D. or some other initials after your name. Now the court could look to dischargeability, but I'm thinking the UST is looking to do otherwise.

My honest opinion is that the Trustee is moving for a 707(b) "presumption of abuse" dismissal. They are lining up their ducks. I wouldn't be surprised at your 341 Meeting that you're told then, that the UST doesn't think you should be discharged.

My thoughts are that you will be pushed to a Chapter 13. However, they will make a calculation called a hypothetical Chapter 13 to see if you can make a meaningful distribution to the creditors in that Chapter 13. If you can't make a meaningful distribution, they'll probably let you go ahead and get your Chapter 7 discharge.

[TeacherMomma]

Thanks for the info.

I do have some initials after my name, so does my husband. Public Service though for both of us, so not much $$ for those initials.

Student loans are always interesting. Perhaps you took a deduction (on your Schedule J) for student debt repayment... and they want to remove that from your expenses (on Schedule J).

What do you mean they want to remove that? Yes, we did list them on Schedule J. And at the end of the means test Part VII they are listed as "Additional Expense Claims".

[justbroke]

What do you mean they want to remove that? Yes, we did list them on Schedule J. And at the end of the means test Part VII they are listed as "Additional Expense Claims".

Well, that's what the UST is going to attack then. They are going to say that you cannot claim student loan repayments as an expense on your Schedule J, and that you could provide a meaningful distribution to your secured creditors if you converted your case to a Chapter 13.

What State are you in, if you don't mind me asking?

[TeacherMomma]

I am in CA, Central Court.
Now, if they converted to 13, I wouldn't be worried but they don't include SLs in the plan, right? Then that is where it won't work.....cause they HAVE to be paid or they garnish my/our wages and I can't pay the 13 plan, or do they go into a stay for the 3-5 years you are in 13?
Now if they attempt to convert to a 13, I can withdraw the petition, correct? And I can do that up to when I find out of they are including SLs?

[justbroke]

Now, if they converted to 13, I wouldn't be worried but they don't include SLs in the plan, right?

No, but Student Loans automatically go (back) into a deferment period when you're in a Chapter 13.

Then that is where it won't work.....cause they HAVE to be paid or they garnish my/our wages and I can't pay the 13 plan, or do they go into a stay for the 3-5 years you are in 13?

Well, teh Chapter 13 stops all collection activity on a Student Loan until the Plan is completed and you receive a discharge, or the case dismissed or converted, whichever comes first.

Now if they attempt to convert to a 13, I can withdraw the petition, correct? And I can do that up to when I find out of they are including SLs?

Yes. What they actually do is Motion for a dismissal or conversion. You can just accept the dismissal and be done with it. You do not have to convert.

You just need to wait, be patient, and see what the UST wants to do. It's all in their hands now. Once they actually follow through with their intent -- which they already really told you by sending that notice -- then you can proceed from there. You never know... they could just decide to leave you alone. However, it smells like a 707(b) presumption of abuse is about to be claimed by the UST.

[justbroke]

I did some research for you (and me). I think you should be looking at cases in which your Student Loans have come due, there is no current forbearance or deferment, and you are being sued by them. Specifically around it being a "special circumstance". I think the UST is trying to determine, him/herself whether it is indeed a special circumstance and whether they want to fight over it.

With $400K in student debt, I don't see how the unsecured creditors get anything in a Chapter 13, if you're paying the loan(s) back.

In re Templeton and Williams, 06-11567-BH (Bankr. W.D. Okla. 2007)

Where the application of the means test resulted in the statutory presumption of abuse arising, debtors were able to rebut the presumption by demonstrating that student loan payments presented "special circumstances." It was undisputed that the debtors' student loans were not dischargeable or eligible for deferment or consolidation. Thus, there was nothing the debtors could do to reduce or otherwise avoid the additional expense of the student loans. The court rejected the U.S. Trustee's position that special circumstances must be of an entirely involuntary nature, noting that neither example used in the Code-medical condition or military service-were of a entirely involuntary nature.

[TeacherMomma]

Maybe I am just tired, but I am confused by your response, LOL. Are you saying that I am in a good position as far as that case is concerned, or worse? LOL
The way I see it, and what I think what you cited states, is that I have no choice but to pay them due to their non discharge-ability and the claws the SL companies have now - but in my case they don't have to sue me, they can go straight to garnishing on most of them (the Federal ones mainly) and the private ones will for sure sue and garnish, so I have no choice but to eliminate the other debt in order to pay the SL debt.

Are you saying in your first paragraph that the UST might only consider them a special circumstance if I am being sued/garnished for them?
(In case I am not clear, I am not looking for them to be discharged, I am not claiming they are a harship (well they are, LOL), I am only looking for them to be allowed in terms of qualifying for Ch 7/no presumption.)

PS. I don't think I can be converted to Ch 13 cause of the debt limits, my SLs are over 400K.

[justbroke]

PS. I don't think I can be converted to Ch 13 cause of the debt limits, my SLs are over 400K.

And that's another reason, in your defense, if it gets to that! You can find no relief under Chapter 13 because you exceed the unsecured debt limit of $336K.

I was just writing to say that you have many reasons why it's a special circumstance. It is a large debt, you can't really be pushed into a 13, so the debt is real and you can only achieve true relief from Chapter 7.

[TeacherMomma]

Oh ok, well thank you for making me feel better! We'll see, I know we have a long road ahead....I wonder if the UST will show up at our 341. Yipes! We are pro se so this is pretty crazy for us. Thanks for your responses!

[JRScott]

Yes the UST is likely to be at your 341 in this case. You have high debt and are over median income. However don't sweat, their being there is a matter of formality. It does not mean your case will be any harder or that your discharge will be delayed. They will ask a few questions most likely but so long as your honest and forthright all will be well.

[deadbroke99]

I am just curious, how much are the payments on a $400,000 student loan?

[Amy26]

Its gotta be a lot... I have a 51k federal loan with Sallie Mae that's 223 a month. Unless its on like a 50 year pay back schedule...