🚀 go-pugleaf

kpollak@nospam.com (Karl Pollak) wrote:

>alchemy@interlog.com (Morton M. Goldmacher) wrote:


>>If debts resulting from student loans were to survive bankruptcy they
>>will affect the way they are treated by the student debtor.  When
>>arranging matters with several creditors, a former student will always
>>be wiser to trade off student debt for ordinary secured or unsecured
>>debt.  

>I don't agree. If he has the ability to pay the installments as they
>fall due, there is no reason to pay the loan out by replacing it with
>another loan, unless current interest rates are considerably lower
>than those charged on the CSL.

>If the debtor is refinancing the loan for the purpose of ensuring its
>demise under the bankruptcy proceedings, he is defrauding the
>commercial creditor. To take out credit in contemplation of bankruptcy
>cannot be called anything but fraud.  I just can't believe you wrote
>this, Morton.

>>An individual struggling for solvency will be strongly
>>motivated to pay down their student loan by borrowing elsewhere if
>>bankruptcy is drawing imminent.  

>Maybe governments can borrow their way out of a bankruptcy, consumers
>cannot.  One of the sure ways to ensure that you will be denied
>discharge and/or have the commercial loan survive discharge is
>"trading while knowing himself to be insolvent".  And that is exactly
>what you are suggesting the debtor should do.  In this instance, I
>think it is very bad advice.

I'm not giving advice, I'm describing what is likely to happen if CSLs
were exempt from bankruptcy.  Most bankrupts have a protracted period
of financial struggle before they are petitioned into bankruptcy or
make an  assignment in bankrutcy.  It is commonplace for debtors to
advantageously arrange their affairs before the sword drops, even if
by doing so they jeopardize their discharge.  I don't countenance
practices which are attempts to circumvent the law, but if you are
discussing the consequences of changing bankruptcy legislation you
ought to do so in light of the actual practices of bankrupts. 


>This is not just playing games with a few words.  I've seen a number
>of bankrupt debtors who were denied discharge for those reasons (at my
>request) or who continued to be liable for some of their debts after
>they were discharged from bankruptcy.

>>Giving any creditor an advantage in
>>the bankruptcy process affects all other creditors.  

>Correction:  "Giving a creditor a preference over other creditors of
>the same class" affects other creditors of the same class.

The division of creditors into three classes is an example of the
principle.  For instance, if a debtor has a large debt secured by a
single sufficient asset, and few other assets, it is unlikely that an
unsecured creditor will take the step of filing a petition.  Your
statement regarding creditors of the same class accurately states the
law, but in the commercial world creditors of different classes may
affect each other.

>The bankruptcy laws recognize that not all creditors have the same
>claims. Essentially, you have 3 classes: Preferred, Secured and
>Unsecured.  The law has always recognized that secured creditors take
>what ever security interests they have in the property of the bankrupt
>and go on their merry way regardless of what's left over for the other
>2 classes.  Then the Preferred creditors go to town and take what's
>left, till their claims are satisfied in full.  Then, and only then,
>comes the unsecured creditors to take whatever they can get.  Usually
>it amounts Zip-O.

>Since CSL are an investment in the future earnings of the borrower, it
>appears to me quite justifiable that the loan shold survive until
>those future earnings are realized.

Taxes owing are even less justifiably discharged by bankruptcy since
they arise with income earned and enjoyed, yet they are absolved by
bankruptcy.  Most loans which are advanced to borrowers are for
investment, and bankruptcy is usually a tacit declaration of the
failure of the enterprise financed by the loan.  If a student is
unemployed for several years after graduation, its a good bet that the
investment isn't yielding dividends.  Like any other entepreneur, the
student ought to be given the opportunity put his fate in the hands of
the  bankruptcy court.  If the government believes that the former
student is simply evading a responsibility that he is able to
shoulder, they should plead their case to a judge like any other
creditor must, rather than excercise their sweeping legislative
powers.


>>Making student
>>debts endure bankruptcy will cause them to be preferred as a result of
>>the manner in which they will be treated, even though in law they have
>>no preference over other non-secured debt.

>True, at present they have no such precedence.  But we are discussing
>wether or not the statute should be changed to provide for such
>preference.



Morton M. Goldmacher
Barrister and Solicitor