Breach of Contract and Bankruptcy

[Gary Boatwright]

I've got a creditor who filed a claim for a contract that I want to dispute. My attorney insists that he only handles undisputed bankruptcy cases and is not interested in challenging the creditor's claim.

It looks like I will have to substitute in as a pro per to challenge the claim for breach of contract. Two certified bankruptcy specialists I was referred to by my County Bar Association have refused to accept my case. I've offered to pay them for legal advice with the understanding that they are not representing me.

It looks like my dilemma is that an attorney cannot give me legal advice unless they represent me and they are not interested in representing me so I can't get legal advice. They won't even tell me what the problem is, I think because that would be legal advice.

I've done some research at the County law library and it looks like breach of contract cases may be outside of the jurisdiction of, or at least disfavored by, bankruptcy courts. How do I contest a creditor's claim on grounds of breach of contract?

[HHM]

First, a few questions:

Who is the creditor, how much do you owe, are they secured or unsecured.

What is the alleged breah of contract?

If its purely a breach of contract for non-payment, who cares; if you are filing BK, any money you owe them will be discharged. Also, if the claim arose before you file BK, the claim becomes an asset of the BK estate and the trustee can take over the claim from you anyway.

[Gary Boatwright]

Bankruptcy & Contract Law

I think what I need to do is apply a Chapter 13 Breach of Contract analysis to a Chapter 7 Student Loan creditor. Part of the problem is that I have talked to two bankruptcy attornies who aren't interested in my case and won't tell me why. I've even offered to pay their hourly fee with a non-retainer agreement so I can represent myself more effectively. They also won't explain why there is a problem with that type of arrangement, so I'm just guessing about a lot of things.

I think my case is pretty rare. I was turned down for my student loan in my third year of law school. I was 46 at the time and had perfect credit. I have no idea why I was turned down, but as a consequence I am five credits short of my law degree. I have a straight forward case of detrimental reliance on Salie Mae's firm offer of credit for all three years.

I'm going to the local law library tomorrow to investigate a Rule 2004 examination.

[HHM]

To be honest, sounds like sour grapes to me. If you went to law school, then you should know, how can you have breach of contract without a contract. Lenders generally don't need a reason to deny you loan, (so long as its not discriminatory, but good luck trying to prove that).

It sounds like to me you are wanting to discharge prior student loans (for the 1st and 2nd years of law school) because they whould not lend to you the third year, if that is the case, (as creative as you may be), fat chance.

There is a difference between law school "law" and real law. Unfortunatley, student loans are not offered for any more than a semester at a time.

A rule 2004 exam may help in that you may be able to assertain why you were disapproved in your 3rd year, but expect a fight.

[Gary Boatwright]

That seems to be the consensus

Quite frankly, it's a consensus that I do not accept and strikes me as displaying a lack of original thinking. I omitted one detail that may make a difference, because I do not think it is necessary to make my case. My credit was perfect except for a series of errors by Sallie Mae. I have a credit report following my 2nd year of law school that lists 18 student loans totaling slightly over $140,000. That is more than double what the total should be.

The conclusion that student loans are offered for one semester at a time is factually wrong. The decision to grant a student loan is renewed each year, and then split into semester payments to guarantee the loan is used for the purpose for which it was intended.

It appears that Sallie Mae turned down my third year loan solely because Sallie Mae messed up my credit. Sallie Mae's egregious error also caused additional financial problems that are not necessary to my analysis. It baffles me why the presumption is that Sallie Mae is entitled to collect on loans for a degree that I did not received, solely because Sallie Mae turned down my third year loan for either no reason or for reasons that were the clear result of negligence on their part. If it matters, I was two spots out of the top third of my class at the end of two years and was looking at two twelve credit semesters in my final year, because I took a heavy schedule my second year.

I was also President of the USD ATLA mock trial club, participated in student government, volunteered at a family law clinic for low income people and volunteered to handle an SSI disability case each semester of my second year. I had a very busy and very productive second year of law school. Allow me to repeat that I had two twelve credit semesters left to complete my degree. I would have easily finished in the top third of my class.

I made monumental changes in my life based on my detrimental reliance that I would receive a loan for all three years of law school, absent bad faith conduct on my part. Rejecting my third year loan violates the clear public policy rational Congress had for setting up the student loan program. How many people would accept student loans if they could be rejected for no reason for subsequent loans? Is Sallie Mae entitled to make arbitrary decisions to reject the final loan required to get a degree?

Viewing each year's student loan as an independent decision is pinched thinking. You cannot possibly be unaware of the trite expression "thinking like a lawyer." It does not seem to me that tremendous creativity is required to make the argument that student loans are a dependent package of loans from the lender based on the good faith performance by the student. Lacking either bad faith or lack of performance by the student, Sallie Mae has an obligation to renew the promise of a student loan each year. My ability to perform my end of the contract is clearly dependent on Sallie Mae's promise of good faith performance in granting subsequent loans.

Have you ever heard of someone being turned down for a student loan for the last year of their degree? Is this a common occurance? I fully intend to submit a discovery request to find out. I will ask not only for discovery of the reason my loan application was rejected, but discovery for both the number of applications that are rejected each year and the criteria those decisions are based on.

Let's pretend I was a medical student. Can Sallie Mae really reject someone's student loan in the final year of med school for no reason? You don't see an argument that a med student who has performed their end of the contract in good faith is entitled to the final loan requred to get their degree? In spite of years of sacrifice and substantial performance by the med student, Sallie Mae can arbitrarily say "Sorry Charlie" with no rationale, rhyme or reason?

The sole purpose for accepting a student loan is to get a degree. If I was unable to get my degree for the sole reason that Sallie Mae rejected my third year application, I have received absolutely no benefit from the loans for the first two years.

I also tested the waters on my decision to get a law degree by first getting a Paralegal Certificate at my local community college. The decision to pursue a legal career was not a decision I made lightly at my stage in life. Being five credits short of a law degree and $1.50 will get you a bus pass. It is not only worthless, it is actually a hindrence in subsequent employment.

I am now unable to get employment as a paralegal because my law school records are embargoed by my failure to make payments on my student loans. Even if my law school records were available, they would be a hindrence in further gainful employment because they raise the obvious, and innacurate, perception of being an unstable prospective employee. I am now gainfully employed in a different field. My "almost law degree" has been of absolutely no value whatsoever.

The reason I am going to research a 2004 hearing is that it is clear that there is a minimal hurdle for a creditor seeking a decision of non-dischargeability on a contract. At a minimum they must make an initial showing of a valid and binding contract. I am going to make the simple argument that Sallie Mae is also obligated to meet the same burden, under the facts of my case. Everyone assumes that it is impossible for Sallie Mae to be in breach of any contractual promise or offer of credit. I do not accept that assumption.

Sallie Mae breached an agreement of a firm offer of credit for three years that was solely dependent on my good faith performance in law school. That's my argument and I'm sticking to it.

[HHM]

Sorry if I seem trite, but honestly, you really didn't explain your situation, so all I could do is speculate...

In your prior post you said that "you didn't know why your were turned down", and now you are giving reasons, what, are we supposed to speculate about your situation.

Anyway, here is your problem, Bankruptcy would be the wrong venue to bring this action, your case sounds like fairly standard "Tort" Claims and possible breach of FACTA. The fact in my post that you glanced over is that, any claim YOU HAVE against anyone else that arose before you file BK is an ASSET of your bankruptcy estate, as such, you would turn over the case to the BK trustee and any financial award may be distributed to your creditors; Now, the BK trustee may or may not chose to pursue it, if the Trustee does not chose to assume the case (which, given the nature of the case, he/she may not), then he would have abandoned the asset and you are free to continue litigation.

Now that you have filed in the facts a bit more, I still think breach of contract is the weaker of the legal theories. I will grant you the fact that Student Loans are done yearly (I just remembered that when I had student loans, I could accept or reject the loan every semester). However, I do know that each new year is a new contract. Also, you probably don't want to go the contract route because odds are there are mandatory arbitration clauses and damage caps. Your stronger case is likely a slew of Tort claims given that your theory that you were denied by SM's mistakes, that is Negligence, Gross Negligence, Fraud, etc etc etc, and some possible federal claims under FACTA or FCRA. Granted, you plead every possible legal theory, I just think the breach of contract is the weaker theory based on the facts that you outlined (i.e. SM made a mistake in the way it reported your accounts causing you harm, that is probably better litigated as a Tort action), but as you say, you can get fairly creative with the contract issues, if you had the time and money to litigate them.

In short, you are seeking help from the wrong attorney's, most debtor BK attorney's are not civil litigators, also, I suspect they are turning you down because of the fact the cause of action becomes property of the BK estate if you file BK and the attorney might have to defend themselves in a fraudulent transfer case against the Trustee when the Trustee would seek to disgorge fees, or they would lose all attorney's fees as a creditor.

You should go see a general civil litigator with federal experience regarding this case.

I hope you come back and give us an update...your situation is an interesting one.

[Gary Boatwright]

I'm not filing bankruptcy out of choice

The suggestion that I should hire a civil litigator is exactly what my current bankrutpcy attorney recommended. In the Orange County yellow pages there are a whole two attornies listed under the classification "Civil Attorney." That probably explains why I have been referred to an L.A. County attorney for the second time.

I was trying to get caught up on the financial problems caused by my failure to get a degree when the San Diego city collection office started threatening to issue a warrant for my arrest on some overdue parking tickets. I though that was pretty strange and reminded the city employee who made the threat that I had sent San Diego an eleven hundred dollar payment on a different matter just last year. I was informed that they had no record of my payment and was told I was a liar.

Since I was telling the truth about making an eleven hundred dollar payment, that was not a reasuring phone conversation. I finally decided that the 18% car loan I was making payments on was not doing anything to rehabilitate my credit, so I paid off my car and coerced a new bankruptcy attorney into taking money from me and filing a Chapter 7. I had been turned down by several other attornies so I soft pedaled the Sallie Mae loans that spooks bankrukptcy attornies. A little over a week after I filed for Chapter 7 I got a call from a rude collection agent for Sallie Mae who said they were going to start garnishing my wages and they didn't need to go to court to do it.

Another interesting side story is that when I asked for a written statement of how much I owed, I was informed that they didn't have any written statements of my account that they could send me. I asked to speak to that person's supervisor and then asked to talk to that person's supervisor when I got the same response. I finally got a written statement that amounted to half of what I actually owe in student loans. I still haven't figured out which collection agents are trying to collect on my real debt and which ones are trying to collect on my mythical debt. I'm waiting for them to make non-dischargeability claims with great interest. I suspect there is still some confusion over how much I owe and to whom.

Even though I found employment in a field unrelated to law, I don't have unlimited financial assets to hire an attorney. Two problems. One, if I don't vigorously contest the Sallie Mae loans, I will probably be hit with res judicata when I file either a tort or contract or hybrid claim for damages. Two, Sallie Mae will want me to make monthly payments that will make it even more difficult to pay for an attorney to file a claim against them.

I have been aware for some time that I have an interesting case, which seems to be the problem. I have been casually trying to find an attorney for two years now. Circumstances dictated my response and venue. I am reminded of the old saw that the Chinese word for crisis is a combination of the words for danger and opportunity. Unfortunately, I have not been able to locate an attorney who can recognize the opportunity part of the equation. That is why I am resigned to firing my current attorney and finishing my bankruptcy pro per.

I am hoping the L.A. bankruptcy attorney I was referred to last week will be willing to let me give them money in exchange for suggestions on how to handle my bankruptcy to minimize the damage to the hybrid tort/contract case I hope to file in the near future. It is very possible I will have to file that pro per as well, on the assumption that a $5,000 retainer and $250 per week payments will not be adequate to hire an attorney who can represent me any better than I can represent myself.

I suspect that a civil attorney will recognize the likelihood that Sallie Mae will appeal even if I win, and they will not want to be stuck with a case that the judge will not excuse them from just because I can't pay all of their fees and expenses. I am considering running an ad in the L.A. Journal "Will work for legal representation."

[HHM]

I'm waiting for them to make non-dischargeability claims with great interest.

Here is one problem, they don't have to file anything to have their debt considered non-dischargeable, student loans (as defined under 11 USC 523) are specifically excepted from discharge, so SM doesn't have to file anything (assuming the student loans fit the definition contained in the code).

Again, another problem is, did you list the cause of action in your BK as an asset. If you didn't, you are creating a can of worms in your BK, even if you received your discharged before bringing the action, your discharged could be revoked.

I think for any attorney to take this case, you would have to be prepared to bankroll the case up front, since your dealing with contract/tort action, there is no gaurantee of attorney's fees and the chance of recovery seems too circumspect for an attorney to take the case on contingency. Sorry.

[Gary Boatwright]

Now that's some useful and interesting feedback. Can you explain why I can't find an attorney who will let me pay them money for that type of basic information? The reason I have been trying to hire an attorney who is experienced in contested bankruptcy is that my current attorney only handles undisputed bankruptcies. Until I filed I was not aware that there was such a sharp divide between attornies who handled disputed and undisputed bankruptcies. The Orange County Bar Association does not list them separately and neither does the yellow pages.

I still would like to hire an attorney who can provide me with exactly the practical observations you just made. That's all. I am even willing to sign a non-retainer agreement, if there is such a thing.

For example, since my cause of action against Sallie Mae is purely speculative, how can I list it? If I can get my student loan discharged, I would have no problem having the rest of my Chapter 7 discharge revoked.

One very interesting point that I would like to get before the court is that I still would like to complete my JD degree. Since it is impossible for me to pay tuition without a student loan, I can only get my degree by having my current student loan discharged. How about that for a legal quagmire?

Since I only have $5,000 cash available for an attorney, it is not likely I will be able to bankroll my case. That is exactly the reason I surmised I have been unable to hire an attorney, although they wouldn't say that straight out. There most certainly must be other legal pitfalls exactly like the ones you describe that I am not aware of because I do not practice bankruptcy. Is there some method of hiring an attorney to give me legal feedback on my pro per case without making them responsible for any consequences of their, shall we say, legal proof reading services?

One attorney suggested that I may be able to hire a "ghost writer" to review my pleadings. Is there an ethical cannon that makes that a problem for a licensed attorney?

[miahwebb]

What ever happened in this situation?