Niwot, CO Bankruptcy Law Firms & Lawyers

Non exempt assets are those assets that the debtor owns which cannot be covered by any of the available exemptions. California has two sets of exemptions. They are found at California Civil Procedure Section 703.140 and starting with California Civil Procedure Section 704.010 running through 704.950. You must have been a resident of California for a minimum of 2 years before filing your bankruptcy case in order to use one of these sets. You must choose one set over the other and cannot use both. Selecting the appropriate set AND then applying the correct exemptions to your property is a critical step in the bankruptcy process. Doing it wrong can result in loss of property. Non-exempt property is either taken by the Trustee who liquidates the asset and uses the funds to pay off creditors unless the value is so negligible that the Trustee decides to abandon it. Some people with non-exempt property choose to file under chapter 13 so that they can keep the item but pay the estate the equivalent of the non-exempt value over time. A bankruptcy case in which ALL property is exempt is called a no asset case. I don't suggest you attempt to file bankruptcy without assistance of counsel. Most bankruptcy attorneys offer a free consultation and can review with you the basics of your potential case.

Your friend should see an attorney about filing a Chapter 7 bankruptcy. If her income is as low as you indicate she may qualify for Chapter 7. A Chapter 7 bankruptcy will discharge all of her dischargeable debts.

For some general information about how very difficult and expensive it is to do this, see the following article: Comments on the Dischargeability of Student Loans in Bankruptcy 1. Overview The Bankruptcy Code provides that student loans are not discharged in any bankruptcy proceeding unless "excepting such debt from discharge would impose an undue hardship on the debtor." Section 523(a)(8). The test - undue hardship - is very difficult to meet. It is the debtor's burden to prove the undue hardship at trial. Undue hardship means an inability to maintain a "minimal standard of living," essentially forever. 2. The Procedure To obtain a discharge of student loans, a person must: a. File a bankruptcy proceeding, chapter 7, 11 or 13, and, b. During the pending bankruptcy proceeding, file a Complaint against the student loan lender (or lenders) asking the court to "declare" that repayment of the student loan will be an undue hardship on the debtor. Filing the Complaint begins an adversary proceeding. This is the same thing as litigation outside of bankruptcy. The lender is the "defendant" in the proceeding. The lender will file an "Answer" or other response to the Complaint. The Court will set a status conference and eventually set a trial date. During the interim between the filing of the Complaint and trial will be a "discovery period." The lender defendant will take the deposition of the debtor and possibly the debtor's other witnesses. The lender will request documents from the debtor including income and expense records and employment records. The lender may file various motions such as Motion for Summary Judgment. The time between the filing of the Complaint and trial varies but can be generally estimated to be six months to a year. Trial generally will take a few days. After hearing the debtor's witnesses and other evidence and the lender's response and its evidence, the Bankruptcy Court will rule and "declare" whether any or all of the student loans represent an undue hardship to the debtor. 3. Determining Whether There is Undue Hardship The Bankruptcy Courts use a three prong test called the Brunner Test to determine whether or not there is undue hardship. The Brunner Test (831 F.2d at 396) requires that the debtor prove all of the following: a. that the debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if forced to repay the loans; b. that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and c. that the debtor has made good faith efforts to repay the loans. 3.1 The First Brunner Prong - Inability to Pay Now The first prong is the easiest to meet. The debtor must offer evidence at trial that repayment of the loan is not possible "based on current income and expenses." This is established usually by the debtor's own testimony and personal records. The debtor's testimony is that he has a job (or does not), makes x amount of money, and that amount is not enough to allow him to maintain a minimal standard of living. The lender will often argue that the debtor can get a better job, or work more hours, or cut back on expenses, get a less expensive place to live, and thereby pay some of the loans and still maintain a minimal standard of living. A minimal standard of living does not include private schools for children, putting money away for retirement, or supporting other family members or unrelated persons. 3.2 The Second Brunner Prong - Inability to Pay in the Future To meet the second prong, the debtor must prove at trial that "this state of affairs," i.e., his current financial condition, will continue forever essentially. The debtor will need evidence at trial that he will not make significantly more in the future than he is making now. The debtor can certainly get on the stand and say that his position is as high as he will ever