[Publib] Q on Patron Bankruptcy and what to do

[Fred Beisser]

Generally, all debts are discharged in bankruptcy by the US Bankruptcy 
Court except for amounts owed for taxes to the Internal Revenue Service 
and a very few other items.

See http://en.wikipedia.org/wiki/Bankruptcy
and http://www.law.cornell.edu/wex/index.php/Bankruptcy

Debts that Remain After a Chapter 7 Bankrupctcy  Discharge

If you file for bankruptcy under Chapter 7, you should be aware that not 
all debts are eliminated (or "discharged") once the bankruptcy process 
is complete. Generally speaking, in a Chapter 7 proceeding, the 
following debts are not discharged:

    * Debts or creditors not listed on the schedules filed at the outset 
of the case.

    * Most student loans, unless repayment would cause the debtor and 
his or her dependents undue hardship (more on student loans below).

    * Recent federal, state, and local taxes.

    * Child support and spousal maintenance (alimony).

    * Government-imposed restitution, fines, and penalties.

    * Court fees.

    * Debts resulting from driving while intoxicated.

    * Debts not dischargeable in a previous bankruptcy because of the 
debtor's fraud.

Student Loans

As noted in the above list, educational loans are generally not 
discharged by a Chapter 7 bankruptcy. They may be dischargeable, 
however, if the court finds that paying off the loan will impose an 
"undue hardship" on the debtor and his or her dependents.

In order to qualify for a hardship discharge of a student loan, the 
debtor must demonstrate that he or she cannot make payments at the time 
the bankruptcy is filed, and will not be able to make payments in the 
future. The debtor must apply for the hardship discharge before 
discharge of the debtor's other debts is granted. Application for a 
hardship discharge is not included in the standard bankruptcy fees, and 
must be paid for after the case is filed.

The Bankruptcy Code does not specifically define the requirements for 
granting a hardship discharge of a student loan. Courts have applied 
different standards, but they often apply a three-part test to determine 
eligibility:

   1. Income -- if the debtor is forced to pay off the student loan, the 
debtor will not be able to maintain a minimum standard of living for 
himself or herself and his or her dependents;
   2. Duration -- the financial circumstances that satisfy the income 
test in (1) will continue for a significant portion of the repayment 
period; and
   3. Good Faith -- the debtor must have made a good-faith effort to 
repay the loan prior to the bankruptcy.
Additional Non-Dischargeable Debts

In addition, the following debts are not discharged if the creditor 
objects during the case and proves that the debt fits one of these 
categories:

    * Debts from fraud, including certain debts for luxury goods or 
services incurred within ninety days before filing and certain cash 
advances taken within seventy days after filing.

    * Debts from willful and malicious acts.

    * Debts from embezzlement, larceny, or breach of fiduciary duty.

    * Debts from a divorce settlement agreement or court decree, if the 
debtor has the ability to pay and the detriment to the recipient would 
be greater than the benefit to the debtor.

Probably more than you wanted to know. In your case, key is whether or 
not your amount owed by the debtor was listed with the BK court or not. 
If not, then is not discharged and can still be collected if you can 
squeeze it from him/her.

Fred Beisser
Trustee
www.elbertcountylibrary.org
Colorado

Joan G. Henderson wrote:

>I don't know if the topic of patron bankruptcy has been covered here before
>or not, but I have some concerns about how the Library should interpret
>patron bankruptcy papers that are received from United States Bankruptcy
>Court, Eastern District of Missouri. I searched for guidance for the
>situation with government agency fines and fees at
>http://www.moeb.uscourts.gov/, but didn't see anything to help resolve.
>
>We want to make sure we are following legal requirements.
>
>If the Library receives "Discharge of Debtor" papers from the Court for a
>specific patron, does that eliminate their library debt, since the library
>is a governmental agency?  Also, if you do wipe out their debt to your
>library, do you immediately allow new "credit" to be extended?  Or, do you
>set some maximum of library debt elimination, say, if under $500, then new
>"credit" is extended immediately. If over $500 library debt (or some
>amount), then new "credit" not extended for some period of time, like one
>year or something?
>
>Trying to be fair to all taxpayers (and make sure we are in full compliance
>with law).
>
>Thank you.  
>
>-----------------
>Joan G. Henderson, Director
>Ferguson Municipal Public Library
>35 N. Florissant Rd.
>Ferguson, MO 63135
>jghenderson at real.more.net
>www.ferguson.lib.mo.us
>phone (314) 521-4820 
>fax (314) 521-1275 
>
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