Believe it or not, certain unsecured loans from government entities are dischargeable in bankruptcy.
This includes SBA loans, and loans made through The Department of Veteran’s Affairs (VA), Department of Housing and Urban Development (HUD) and others.
That’s the good news.
What is CAIVRS and How is it a Problem?
The bad news is that the government keeps a list known as “CAIVRS”.
From the HUD website: “CAIVRS is a Federal government database of delinquent Federal debtors that allows federal agencies to reduce the risk to federal loan and loan guarantee programs. CAIVRS alerts participating Federal lending agencies when an applicant for credit benefits, or for a position of trust in support of the administration of a Federal credit program, has a Federal lien, judgment or a Federal loan that is currently in default or foreclosure, or has had a claim paid by a reporting agency.”
CAIVRS combines delinquent borrower records from the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the Department of Education (DOE), the Department of Agriculture (USDA), the Small Business Administration (SBA), and the Department of Justice (DOJ).
How The Government Apparently Ignores Bankruptcy Discharges
A recent client of mine, who received his discharge, was surprised to found out when he applied for a loan from the VA that they would not give him a loan unless and until he paid off the SBA loan that was discharged in his bankruptcy case.
This sounds a lot like a violation of the post-discharge injunction set forth in 11 U.S.C. 524 which prohibits any attempts to collect on a discharged debt.
On the other hand, nobody is under any obligation to lend money to anyone else. Can a refusal to give a loan be a violation of the discharge injunction? There don’t seem to be any published court opinions on point.¹
The problem with having a determination made that the VA’s policy violates the bankruptcy discharge is that it costs money to have the court make that ruling. Thus, until someone establishes a precedent, the government will continue to refuse to give new loans to those on the CAIVRS list despite the debt having been discharged in bankruptcy.
1 Only one case in the entire country even mentions CAIVRS in a footnote, but the facts were different than those that are the subject of this article. Brown vs. Bank of America, 481 B.R. 351 (Bankr. W.D. PA 2012).
Mark Markus , today’s guest author, has been practicing exclusively bankruptcy law in California since 1991. He is a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization, AV-Rated by martindale.com, and A+ rated by the Better Business Bureau. His further thoughts on bankruptcy can be found at www.bklaw.com
Image courtesy of Flickr and palo.