Nashville Bankruptcy Law Blog

With student loan debt increasing throughout the U.S., many college graduates in Tennessee may be tempted to turn to bankruptcy. While students loans were dischargeable in bankruptcy prior to 1976, Congress has amended bankruptcy laws several times. Since 1998, public student loans have not been allowed to be discharged in bankruptcy absent a showing of undue hardship. In 2005, Congress made the same provisions with respect to private student loans.

In changing the bankruptcy laws, Congress did not define the term "undue hardship." However, some federal courts have determined that a borrower must show that extenuating circumstances make it impossible to maintain a minimum standard of living. In addition, it should be clear that those circumstances will continue over the entire term of the loan. Furthermore, the borrower must have attempted to repay the loan in good faith. Courts may also consider the age, income and health of the borrower.

Once a consumer disputes a debt according to the requirements of the Fair Debt Collection Practices Act, debt collectors and third-parties must cease collection activities. The Court of Appeals for the 6th Circuit, of which Tennessee is a part, ruled that third-party collections that were set in motion by the debt collector must cease when the consumer disputes the debt. The case involved pre-foreclosure activities by third parties, but it is likely that lawyers for debtors will argue it applies to all third-party collections activities.

The district court had granted summary judgment favoring the debt collector in the case, a law firm, because it had ceased its owned collections actions once the dispute was received. The 6th Circuit reversed the lower court's decision, however, saying that the FDCPA required that the law firm intervene in the actions of third parties it had engaged to help pursue the debt. Specifically, the law firm had contacted a newspaper to post a foreclosure notice and arranged for a sheriff's sale of a property held by the debtor.

In September 2018, there were more than 770,000 bankruptcy filings in the United States. Of those cases filed in Tennessee and elsewhere, 97 percent were consumer bankruptcy filings. The number of cases filed was down from the roughly 1.6 million filed in September 2010. However, the downtrend in bankruptcy filings may be related to the cost of filing. It may also be related to the fact that many people don't have assets to protect.

Legal fees for a Chapter 7 case average about $1,200, and that number jumps to $3,200 for Chapter 13 cases. However, those who file for Chapter 13 bankruptcy may be allowed to pay legal fees in installments. Older Americans tend to be more likely to file for bankruptcy because of limited financial resources. Professionals who follow the issue of bankruptcy do cite other more mundane reasons why bankruptcy filings have dropped in the past decade.

In 2017, there were 789,000 bankruptcy filings, which were the second-lowest since 1990. That compares to the 1.6 million filings in 2010 in the aftermath of the Great Recession. However, the decline in bankruptcy filings hasn't been uniform for all age groups. Older Americans in Tennessee and throughout the country are filing for bankruptcy at a higher rate than in previous years. There are several reasons as to why this may be the case.

First, people in this age group are contending with higher out-of-pocket health care costs as well as fewer pension benefits. Furthermore, their Social Security benefits aren't necessarily as good as other generations received. A researcher from Boston College found that these payments only replace 38 percent of a person's income as of 2010. In 1980, the payments replaced 48 percent of an individual's income after retirement. Workers who have pensions are unlikely to have defined benefits.