No one group has a monopoly on financial problems. It doesn’t matter how wealthy or poor you are or how much or little you’ve worked and saved. Emergencies and unexpected life changes that can drive almost anyone to bankruptcy – divorces, sudden illnesses, natural disasters, job losses – come along at some point in almost everyone’s life. Unexpected medical expenditures, overextended credit, income reductions, and divorce are in fact the triggers behind most bankruptcies in the United States today. It’s difficult to identify any demographic group that is “more” apt to file for bankruptcy than another group. Every bankruptcy has a unique story behind it, and every individual and family that files for bankruptcy files for their own reasons.
While there are no official statistics on bankruptcy filings by profession, recent research, news stories, and anecdotal evidence shed light on some of the professions more vulnerable to bankruptcy than others. Anyone can fall into tough financial circumstances, but the one profession that seems to be repeatedly and predominantly mentioned in bankruptcy stories and discussions is school teaching. Several objective reasons can be offered for why so many teachers find themselves filing for bankruptcy. First and foremost, many teachers are still struggling with paying for their college loans, which typically cannot be discharged through bankruptcy. However, in recent years, more bankruptcy courts are allowing student loans to be discharged through the bankruptcy process. A second reason why teachers go bankrupt is that they only work – and only get paid – nine or ten months a year, which means they have to stretch and juggle their resources for a quarter of the year. That’s not as easy as it looks.
WHAT TRIGGERS BANKRUPTCY?
In every demographic or professional group, more bankruptcies are triggered by emergencies and unexpected life changes than by reckless or irresponsible spending. Teachers won substantial wage increases and good employment contracts in many states in the 1970s and 1980s, but so far in the 21st century, teachers’ wages haven’t significantly increased in most states, and the rising cost of housing and health care is driving many teachers into bankruptcy. A teacher cannot be fired for declaring bankruptcy, but when a teacher makes the bankruptcy choice, some special conditions will apply.
Before discussing those conditions, some terms need to be defined. “Chapter 7” and “Chapter 13” both refer to chapters in Title 11 of the United States Code, the complete federal laws of the United States, which currently include 52 “titles.” Title 11 is the U.S. Bankruptcy Code, and Chapters 7 and 13 of Title 11 govern personal bankruptcies. A Chapter 7 bankruptcy and a Chapter 13 bankruptcy are quite different kinds of procedures.
CAN YOU FILE FOR A CHAPTER 7 BANKRUPTCY?
A Chapter 7 bankruptcy discharges your unsecured debt, but the bankruptcy filer must pass a means test to qualify for Chapter 7. The means test is based on the filer’s average household income in the six months prior to the month of the bankruptcy. The means test was established by Congress to identify those who genuinely need to file for a Chapter 7 bankruptcy and to fight fraud and the abuse of bankruptcy laws by those who don’t. Because teachers are on an unusual pay schedule, if a teacher wants to file for bankruptcy under Chapter 7, the way the means test is applied could have an impact on a teacher’s bankruptcy case.
The means test calculates monthly income by averaging the debtor’s monthly incomes for the previous six months and multiplying the average by twelve. This figure will be considered the debtor’s “current monthly income.” Because most teachers are paid only nine or ten times a year – rather than twelve – the means test can inflate a teacher’s actual monthly income by as much as 33 percent. How can a teacher filing for a Chapter 7 bankruptcy deal with the means test? One strategy – for teachers who can wait – is to delay a bankruptcy filing until September or October. A bankruptcy attorney may also be able to intervene on a teacher’s behalf. Before you file for bankruptcy – no matter how far you are in debt or how dire your circumstances appear to be – consult with a knowledgeable bankruptcy lawyer first, and in the Dallas-Fort Worth area, arrange to speak with an experienced Dallas bankruptcy attorney.
WHY WILL YOU NEED A BANKRUPTCY LAWYER?
Bankruptcy isn’t for everyone. A good bankruptcy lawyer can evaluate your financial circumstances and may be able to offer a less drastic but equally effective way to resolve your debts. If, after consulting a bankruptcy lawyer, it turns out that bankruptcy is your only realistic option, an experienced bankruptcy attorney can guide you step-by-step through the process. Your attorney can make certain that your bankruptcy petition is accurate and complete, that your other financial documents are in order, and that you avoid the typical mistakes and misunderstandings that could delay your bankruptcy petition or even cause it to be rejected. If you need to file immediately for bankruptcy because of lawsuits, a wage garnishment, or the threat of repossession or foreclosure, let an experienced bankruptcy lawyer advise you and handle the bankruptcy on your behalf.
While the pay schedule for teachers can create difficulties when you file for bankruptcy, the real financial difficulty for many school teachers is paying back the student loans for their college educations. Traditionally, student loans are considered secured debts that cannot be discharged in bankruptcy, but in recent years, courts are starting to allow the discharge of student loans in individual cases. Moreover, in July 2015, the U.S. Department of Education announced that it will consent to and/or not oppose the undue hardship discharge of student loans in cases where repaying the loan would impose an undue hardship on the debtor.
If you can prove that repaying your student loan would cause an undue hardship, you may be able to discharge a student loan through bankruptcy. The test used to determine undue hardship varies from court to court. Frankly, most bankruptcy courts are still reluctant to discharge student loans, but if your income is meager or non-existent – or if your student loan is from a for-profit trade school – it’s possible that your student loan can be discharged through a bankruptcy procedure, but you’ll need a good bankruptcy attorney’s help.
WHAT IS THE BRUNNER TEST?
If you are seeking to discharge a student loan through bankruptcy, you and your bankruptcy attorney will be obligated to demonstrate to the bankruptcy court why paying the loan would create an undue hardship. Most bankruptcy courts use the three-part “Brunner” test, established in 1987. The Brunner test determines if a debtor can afford to pay his or her student loan. To meet the criteria of the Brunner test, a bankruptcy petitioner trying to discharge a student loan must prove that:
- He or she has made a good faith effort to repay the loan.
- He or she cannot maintain a “minimal” standard of living if forced to repay the loan.
- The situation is likely to persist for a significant portion of the repayment period.
In a typical Chapter 7 bankruptcy, your assets are liquidated and sold to pay unsecured debts. Medical and credit card debt can be discharged, and you’ll be protected during the bankruptcy process from foreclosure, repossession, and lawsuits filed by creditors. A Chapter 13 bankruptcy will allow you to keep some of your assets, but it will create a repayment plan and a repayment schedule. Under Chapter 13, you agree to pay off creditors over a specified period of time, typically three years. It’s best to discuss all of the nuances and aspects of your own case with an experienced bankruptcy attorney who can recommend the legal action that’s in your own best long-term interests. You should know that even a Chapter 7 bankruptcy won’t leave you destitute. A number of your possessions are exempted from bankruptcy. You won’t be homeless, and you’ll have what you need to rebuild your credit over time and take advantage of the fresh financial start that bankruptcy provides.
IS BANKRUPTCY FOR YOU?
If you are a teacher, and you are struggling with debts that may or may not include a student loan, get advice from an experienced bankruptcy lawyer. Obviously, every case will differ and require individualized advice. Nevertheless, all teachers who file for bankruptcy will face some of the same consequences. Your credit score will take a hit, and you’ll need time – and financial discipline – to reestablish your credit. A bankruptcy can remain on your credit report for seven to ten years. And although teachers cannot be fired if they file for bankruptcy – and employers aren’t allowed to consider a job candidate’s bankruptcy, either – it’s still possible that you may encounter discrimination. If you do, it’s not legal, and your bankruptcy lawyer will recommend the best way to deal with it.
Bankruptcy is a chance to start again with a clean financial slate. It’s a way to catch your breath, clean up most if not all of your debts, and dedicate yourself to a better future. If you are a teacher repaying a student loan, even if you are not allowed to discharge that debt, discharging other debts may make your student loan easier to repay. And again, bankruptcy may not even be the best option in your own case. If you struggle with debt – as a teacher or in any other line of work – and the debt seems to be winning, see a good bankruptcy lawyer right away, and in the Dallas-Fort Worth area, contact an experienced Dallas bankruptcy attorney for the sound bankruptcy advice you need.