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= •Some interesting facts to demonstrate the recent swings in bankruptcy filings.&= #13;

•

= •Prior to effective date of the reform act record setting numbers of bankruptc= ies were filed. In 2005 over 2 m= illion individuals filed bankruptcy. This was ½ million more persons •

•Post reform bankruptcy filings fell 73% in 2006.

•

• In = 2007, there was a 48% increase in number of individual bankruptcies filed. Many related to the mortgage crisis as the

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<= span style=3D'font-family:Calibri;font-size:133%'>Q.What is Bankruptcy?

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>R.

A. A legislatively created pro= cess to allow individuals and businesses to discharge certain of their debts by paying <= /span>amounts, including zero, as set by the Bankruptcy = Code and Rules.=

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Q. What are the common types of Bankruptcy?

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>Q.

A.Chapter 7-a process = of liquidation where the debtor assigns all non-exempt assets to the court to= be divided among their creditors in a priority as set by the bankruptcy law a= nd code.

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>B.

Chapter 13-a process where the debtor identifies their debts and presents a plan, for creditor and court approval, to repay debts based upon type of debt owed and the bankruptcy law and code. The debtor’s disposable inc= ome, after reasonable expenses, must be paid into the court trustee for monthly distribution.

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Chapter 11-this is a bankruptcy which is only available to businesses, although some courts have allowed student loans, a personal debt, to be included in these proceedings. A Chapter 11 operates much like a= Chapter 13. The debts are paid throu= gh a court managed plan.

Chapter 12-this is a proceeding which is only availab= le for agribusiness or “family farm” debts. As with the use of a Chapter 11-s= ome courts have permitted individual debts to be included.

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<= span style=3D'font-family:Calibri;font-size:133%'>Q.How is Bankruptcy started?

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>R.

A.The debtor files a petition with the bankruptcy co= urt to have their debts discharg= ed.

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>= B.

<= span style=3D'font-family:Calibri;font-size:133%'>Q.How will I know if my accounts are involved? <= /span>

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>R.

A.The debtor provides a matrix of all their creditors and the court sends a notice of the petition filing to each of them. If y= ou are not on the matrix and/or are not given notice, your debt is not impacted b= y the bankruptcy filing.

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Q.When I receive notice of a bankruptcy filing which involve= s one of my accounts, am I required to take any action?

A.You should immediate= ly cease all collection activity and notify your collectors, internal or external. You should then re= view the effected loans and determine their potential discharge status. A proof of claim, this is a form = which states the amount owed and the basis of the debt, should be filed with the court to preserve your rights in the proceeding. You can prepare and file the proo= f of claim, you do not need to hire an attorney.

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<= span style=3D'font-family:Calibri;font-size:133%'>Q.Can the debtor refuse to pay my claim? =

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>R.

A.The debtor may file = an objection to any claim filed, but you have the right to oppose that objection. In some situation= s, other creditors have the right to object to your being paid. You may oppose that action as well. You will need an attor= ney to conduct these proceedings.

B.

<= span style=3D'font-family:Calibri;font-size:133%'>Q.What is the “automatic stay”?

A.This is an order of = the court which becomes effective upon the filing of the debtor’s petition. It prohibits any a= ctions or communication involving the debtor which could be construed as a collec= tion effort. It is sometimes = ;

possible to get permission of the court to lift this

stay, but you need an attorney to file a request &#= 13;

with the court.

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<= span style=3D'font-family:Calibri;font-size:133%'>Q.Will I be required to go to court?

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>R.

A. Typically, you will n= ot be involved in the court process directly.&n= bsp; However, if there are objections to your claim, or the debtor files= for a determination of “undue hardship” your institution will need= to send a witness. If the bankr= uptcy is filed in a court near your institution, you may choose to attend the “Meeting of Creditors”. You will not need to have an attorney with you to participate. At that meeting, also called the = 341 meeting, you may interview the debtor and review their financial records.<= /span>

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Q.How will I know the bankruptcy is over so I may re= sume collections?

A.The court will either issue a “Discharge Order” or a “Dismissal Order”.<= span style=3D'mso-spacerun:yes'> Either one ends the automatic sta= y and closes the proceedings. For = all bankruptcies filed after October 17, 2005, unless there has been a specific determination and order for “Undue Hardship” as part of the bankruptcy, you should consider any student aid debts not discharged. For older bankruptcies filed prio= r to that, you will need to review the discharge rules in place at the time the petition was filed.

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•

“(8) unless excepting such debt from dischar= ge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for

(A)(I) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any pro= gram funded in whole or in part by a governmental unit or a nonprofit instituti= on; or

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(A)(II) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other education loan that is a qualified education loan, as defined in section 221 (D)(1) of the internal revenue c= ode of 1986, incurred by a debtor who is an individual.”

• This change to section 523(A)(8) was effective beginning on October 17, 2005.

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Q.I have had debtors in the past say they believe th= eir student account was discharg= ed in their bankruptcy. How sho= uld I respond?

A.You need to make a review of rules in place at the time the petition was filed and determine = if the accounts are discharged as you understand the rules. If the account did not meet the requirements for a discharge, you should inform the debtor why you believe their account is still valid and continue collections. <= /div>

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Q.What changes were made to the discharge rules for student aid in the 2005 Bankruptcy Reform Act??

<= span style=3D'font-family:Calibri;font-size:133%;visibility:hidden'>R.

A.The most important change was the expansion of the types of student aid now protected from discharge. The reform provis= ions added “qualified education loans” to the protected class and incorporated the Internal Revenue Code definition of “qualified education loan” to describe the loans now added to the not discharge= d in bankruptcy group.

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•

“The term “qualified education loan= 221; means any indebtedness incurred by the taxpayer solely to pay qualified hi= gher education expenses—

(A)Which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time t= he indebtedness was incurred,

(B)Which are paid or incurred within a reasonable period of t= ime before or after the indebtedness is incurred, and Which are attributable to education

furnished during a period during which the

recipient was an eligible student.

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qualifies as a qualified education loan. The term “qualif= ied education loan” shall not include any indebtedness owed to a person = who is related (within the meaning of 26 U.S.C. §§ 267(B) or 707(B)(= 1)]) To the taxpayer or to any person by reason of a loan under any qualified employer plan or under any contract referred to IN 26 U.S.C. § 72(P)5= )] (2) qualified higher education expenses.&= nbsp; The term “qualified higher education expenses” means the cost of attendance (as defined in section 472 of the higher education act = of 1965, 20 U.S.C. § 1087, as in effect on the day before the date of the enactment of this act [enacted June 7, 2001]) at an eligible educational institution,…

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For purposes of the preceding sentence the term “eligible educational institution” has the same meaning given = such term by section 26 U.S.C. § 25a(F)(2), except that such term shall al= so include an institution conducting an internship or residency program leadi= ng to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training.

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Q.Are my institutional and tuition accounts included= in this new class of protect= ed debts?

A.It will take time for the courts to sort out the issues around the institutional receivables discharge question. The big question is whether there is a “loan”. Most institutional receivables de= bt is not reduced to a contract or promissory note. Therefore, challenges to the disc= harge protection will revolve around that issue. A second issue which will likely = be offered as a challenge is that the IRS provisions focus on interest tracki= ng of the student “loans”. With no contract, it is problematic that institutions can or are charging interest. It will likely be argued that if there is= no interest being charged, it is not a “loan” and not protected f= rom

discharge.

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