Peter Francis Geraci A Bankruptcy Blog - Chapter 7 & 13

I just finished reading “The Pale King,” David Foster Wallace’s recent novel. It was... good. Not great, merely good. It’s frustrating because the notes and addenda clearly indicate that it could’ve been something really phenomenal if Wallace hadn’t died (the circumstances of which the book avoids mentioning), but instead, it’s really just a hodgepodge of vignettes and set pieces.

“The Pale King” centers on an IRS tax return examination center in Peoria, Illinois. It’s mostly stories about some of the examiners who work there. Some are funny, some are sad, some have little lessons, some look towards kind of a theme, one is memorably creepy, Cronenberg-style. Many are dense with jargon, tax code minutiae, and finance esoterica. And that brings me to my point, which is that, for a novel substantially about government policy and regulation, “The Pale King” totally fumbles on bankruptcy.

It’s a couple (literally, a couple) terribly minor errors. Bankruptcy is referenced only twice. On page 207 of the current edition, one examiner, Chris Fogle, says his mother wound down her feminist bookstore by way of a Chapter 13. Chapter 13 is exclusively for individuals who need the ability to repay their debt at a rate they could afford. Chapter 13 can stop foreclosure and garnishment and is super-great for lots of people – but it can’t wind down a business. As Fogle’s soliloquy isn’t exactly to-the-point – if his mom did her own chapter 13, he would’ve taken half a dozen extra words to say so – I’d chalk it up to a technical error on Wallace’s part. Especially considering:

On 265, David Foster Wallace (there’s a character by that name in the book, who is not the real David Foster Wallace) notes that the IRS is leasing a building from the proprietary trustees of a corporation that “vanished into the protections of UCC Ch. 7 in the mid-1970s.” And, well, no. A corporation can file a chapter 7 bankruptcy (whether they always should is a different matter; an S-corp or an individual’s d/b/a can often just be allowed to fade into the ether) but the UCC isn’t bankruptcy and UCC chapter 7 is actually a set of proposed regulations involving warehouse receipts and bills of lading.

I’m a fan of Wallace’s fiction and in love with his nonfiction - so it sits unwell for me that he botched something I know very well. Some of the book is clearly fiction (the IRS’ Peoria location does not have an edifice designed to look like a giant form 1040) but actual legal errors bring up a whole host of questions about Wallace’s rigor, whether there are other technical errors when he discusses tax law and regulations, his copyeditor’s research, and just how finished the beloved writer’s “final novel” might have been. And maybe his characters are unreliable narrators and everything was just as he intended. And maybe I’m way too concerned over a work of fiction and should just go ahead and relax. But I really want to know.

It’s very complex to discharge student loans in bankruptcy. Section 523(a)(8) of the Bankruptcy Code requires a separate process in the bankruptcy and a finding of undue hardship – basically, the inability to make any payment ever. There are too many client-specific particulars, multi-part tests, and litigation strategies for anyone to address in a (hopefully) pithy blog post. Our firm has repeatedly overcome these hurdles on behalf of educational borrowers, but it’s not easy and can never be guaranteed.

There’s currently a measure of hope out there for those with sizable student loans, however. Two laws have been introduced to expand the ordinary bankruptcy discharge to include some educational debt.

But first a tiny bit of context: By 2014, the government is going to be the originator of all student loans, unless the college itself is doing the lending. The changeover has already started, but for now, there are two types of student loans: public (originated by the government or nonprofit educational institutions) and private (originated by the big banks or for-profit educational institutions).

Even after 2014, though, borrowers who have already borrowed would be saddled with their debts as they are. The House’s Private Student Loan Bankruptcy Fairness Act (H.R. 5043) and the Senate’s Fairness for Struggling Students Act of 2010 (S. 3219) would treat private student loans the same as other loans – these debts would be easily dischargable in bankruptcy alongside (for example) credit card debt and medical bills.

Both proposals were first presented last year, but because the new Congress is now in session, they'd need to be reintroduced. If you, or someone you love, would be helped by this reform, please contact your legislators and make sure your voice is heard.