Showing posts with label In re Lamento. Show all posts
Showing posts with label In re Lamento. Show all posts

Saturday, July 15, 2017

A single mother of three children gets a bankruptcy discharge of her student loans: Price v. Betsy DeVos and U.S. Department of Education

Kristin Price, a single mother of three young children, won an important victory in a Pennsylvania bankruptcy court last month. On June 23, Judge Eric Frank issued an opinion discharging all of Ms. Price's federal student loans--approximately $26,000. This is another win for the good guys.

Price v. DeVos and the U.S. Department of Education: A single mom files for bankruptcy

At the time of trial, Ms. Price was 29 years old and had three children ages 3, 5 and 11. Although she was still married, she was separated from her husband and anticipated a divorce.

Price obtained a Bachelor of Science degree in Radiology Science from Thomas Jefferson University in 2011, financing her studies with federal and private loans.  At the time of trial, she worked part-time as a vascular sonographer but was unable to find full-time work in her field. She testified she could obtain a second part-time job working outside her field but the additional child care costs did not justify that option.

Price received informal child support from her estranged husband, but her reasonable expenses still exceeded her income. She testified that she lived with her mother in return for paying her mother's mortgage payment--about $1400 a month.

At the time Price filed her adversary complaint in the bankruptcy court, she owed nearly $26,000 in federal loans and $30,000 to Chase Bank.  Price settled with Chase prior to trial. Thus the only issue before Judge Frank was whether Price was entitled to have her federal loans discharged.

Judge Frank applied the three-part Brunner test to rule for Ms. Price

Judge Frank applied the three-part Brunner test to decide Price's case. The Department of Education conceded that Price passed the first prong of the Brunner test; she could not pay back her federal loans and maintain a minimal standard of living.

The Department also conceded that Price passed Brunner's third prong. It acknowledged that she had handled her student loans in good faith.

But DOE argued that Price could not pass Brunner's second prong. According to DOE, Price could not show additional circumstances making it likely that her financial situation would not improve "for a significant portion of the repayment period of the student loans." Basically, DOE maintained that Price was young and healthy and was qualified for a good job in the medical field. Eventually, DOE pointed out, Price's children would grow up and leave the home, which would enable Price to get a better job and repay her student loans.

And here is where Judge Frank's opinion gets interesting. Price argued that her future financial prospects should be considered for no longer than the remaining period of her 10-year loan repayment obligation, which ended in 2024. DOE argued that Judge Frank should consider Price's financial prospects for a much longer time--the 20- or 25-year period of an income-based repayment plan.

Fortunately for Price, Judge Frank did not buy DOE's argument. The judge ruled that Price had rejected a long-term income-based repayment plan in good faith; and thus he would consider her financial prospects based on the terms of her ten-year repayment obligation and not the 20 or 25 years DOE requested.

Judge Frank said he was obligated to consider Price's future financial prospects based on "specific articulable facts, not unfounded optimism." If he were required to consider Price's financial situation over a 20- or 25-year term, Judge Frank reasoned, his determination "[would] be nothing more than mere guesswork, without any reasonable degree of certitude."

Moreover, Judge Frank pointed out, DOE's own expert testified that DOE's 20-year REPAYE program was ill-suited for Price and that he would not recommend it for her. Judge Price also noted that a REPAYE plan would require Price to consolidate her debt, which would cause accrued interest to be capitalized into a larger loan balance--meaning she would be "paying interest on interest."

If Price's meager income did not improve significantly in later years, Judge Frank explained, her loan would eventually "reach a kind of 'escape velocity,'" meaning that her monthly payments would not be enough to cover accruing interest and her loan balance would grow "for the next several decades."

Based on this analysis, Judge Frank then considered what Price's financial prospects would likely be over the next five years--about 70 percent of the remaining repayment period. The judge concluded Price would probably be unable to pay back her loans over that period.

In short, after applying the second prong of the Brunner test to Price's financial outlook, the judge discharged all of Price's federal loans.

Without question, the heart of Judge Price's ruling was based on his conclusion that Price had rejected a long-term payment period in good faith. And of course, his decision was made a lot easier due to the fact that DOE's own expert admitted that a long-term repayment plan was not appropriate for her.

What does the Price decision mean for other overburdened student-loan debtors?

 Judge Frank's Price decision is significant for at least three reasons:

 First, this is the most recent in a string of bankruptcy court decisions that have discharged student-loan debt owed by single mothers with dependent children. Price follows in the wake of Lamento, Acosta-Conniff (on appeal), Fern, and McDowell--all decisions involving single mothers with children who won discharges or partial discharges of their student loans.

Second, this is the latest in a series of very well-reasoned bankruptcy court decisions in which bankruptcy judges have worked hard to grant relief to overburdened debtors within the harsh constraints of the Brunner test. Judge Frank's decision was 25 pages long; Judge Berger's decision in the Johnson case out of Kansas was extensively researched. The Abney decision, the Fern decision, and several more have displayed remarkable intellectual agility and commendable commitment to the bankruptcy courts' core purpose, which is to grant overburdened debtors a fresh start in life.

Third, Judge Frank ruled that when a court applies the second prong of the Brunner test to determine whether  a debtor's financial prospects will improve in the future, the appropriate time period for consideration is the original term of the loan (generally 10 years) rather than the extended term of a hypothetical 20-year or 25-year income-based repayment plan.

Admittedly, Judge Frank's conclusion on this last point is a little fuzzy. Price had refused to sign up for a long-term, income-based repayment plan, and Judge Frank ruled that Price's decision to reject such a plan had been made in good faith. Judge Frank might have ruled differently if Price had signed up for a 20-year REPAYE plan before filing for bankruptcy.

Indeed, the judge wrote that the "outcome may well be different in other cases in which the extended loan repayment programs present a more attractive option, or for other appropriate reasons." And the judge also noted that DOE did not dispute the fact that Price's decision to reject a long-term repayment plan had been made in good faith.

In the final analysis, all we can say for sure about the Price decision is this: A healthy 29-year old mother of three children with good future job prospects won a bankruptcy discharge of her student loans based primarily on the fact that her judge did not think Price would be in a position to repay her loans over the next five years.

Personally, I would have liked the Price decision better if Judge Frank had said that a student-loan debtor's financial prospects should always be limited to the term of the original student loan--generally no more than 10 years. That's not what the judge ruled. Nevertheless, it is a good decision for student-loan debtors.

References



Acosta-Conniff v. ECMC [Educational Credit Management Corporation], 536 B.R. 326 (Bankr. M.D. Ala. 2015), reversed550 B.R. 557 (M.D. Ala. 2016), reversed and remanded, No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017).
Richard Fossey & Robert C. Cloud. Tidings of Comfort and Joy: In an Astonishingly Compassionate Decision, a a Bankruptcy Judge Discharge the Student Loans of an Alabama School Teacher Who Acted as Her Own Attorney. Teachers College Record, July 20, 2015. ID Number: 18040.

In re Lamento, 520 B.R. 667 (Bkrtcy. N.D. Ohio 2014).

Price v. U.S. Department of Education, ky. No. 15-17645 ELF, Adv. No. 16-0011, 2017 Bankr. LEXIS 1748 (Bankr. E.D. Pa. 2017).


McDowell v. Educational Credit Management Corporation, 549 B.R. 744, 774 (Bankr. D. Idaho 2016).






Sunday, March 22, 2015

Susan Dynarski wrings her hands because we don't have enough information about the student debt crisis. But we know enough to take action.

Susan Dynarski recently wrote a half-page article in the Sunday Times, complaining about the government's lack of useful data about the federal student loan program. She's right of course.

The U.S. Department of Education releases very little useful information about the student-loan crisis. The Federal Reserve Bank of New York, which has issued alarming reports on the problem, relies on Equifax, a private credit reporting agency, for most of its information--not DOE. 

Why don't we have better data? Dynarski quotes a former DOE official who says "lack of will" on the part of DOE's data  collectors is part of the answer, along with "reluctance of senior political leadership in the Department of Education to press for action."

In other words, the Obama administration and Arne Duncan's Department of Education don't want the public to know just how bad the student loan crisis really is.

Barack Obama and Arne Duncan just want to get out of town before the federal student loan program collapses. They are like those American officials during the Vietnam War who scrambled to get on one of the last helicopters leaving Saigon before the city fell to the North Vietnamese.

Barack & Arne just want to get out of town before the student loan crisis blows up.
Make no mistake. Barack and Arne know what's going on. They know the lid is about to blow off this smoothly managed crisis.  And they are trying to strew a little evidence around to show they are trying to address the problem without really doing anything about it. For example, President Obama released his laughable and toothless "Student Bill of Rights" earlier this month.

Solving the student-loan crisis will take more than empty platitudes. It will take courage.
  • It will take courage to rein in the for-profit college sector, which is raping low-income and minority students by enticing them to enroll in high-cost educational programs that don't lead to good jobs.
  • It will take courage to amend the Bankruptcy Code so that insolvent student-loan debtors can get reasonable access to bankruptcy relief.
  • It will take courage to stop garnishing the Social Security checks of elderly debtors who defaulted on their student loans.
  •  It will take courage to stop the private student-loan debt collectors from tacking huge penalties on to the loan balances of defaulted student-loan debtors.
And it will also take a sense of human decency, which President Obama's Department of Education apparently does not have.

Thus, in the Myhre bankruptcy case,  we see the Department of Education opposing bankruptcy relief for a quadriplegic student-loan debtor who was working full time and was still unable to support himself financially, much less pay off his student loans.

And in the Lamento bankruptcy case, the Department of Education opposed bankruptcy relief for a single mother of two who was working full time and was only able to put a roof over her children's heads because she was living rent free with her mother and stepfather.

In both the Myhe case and the Lamento case, DOE wanted these unfortunate student-loan debtors to sign up for 25-year repayment plans. And that has been the Obama administration's overall strategy for dealing with the student loan crisis.

Yes, rather than do the decent thing and work for bankruptcy relief for worthy student-loan debtors, President Obama's Department of Education is trying to force most oppressed student-loan debtors into 25-year repayment plans.

And why is DOE doing that? Because if President Obama and Arne Duncan's Department of Education were forced to publicly admit that millions of student-loan debtors are insolvent and will never pay off their loans, the whole sorry business of the federal student loan program would collapse.

But they won't admit it. And that is why, Ms. Dynarski,  the Department of Education is not releasing useful data about the student-loan crisis.

But I'll bet you already knew that, didn't you, Ms. Dynarski? After all, you are one of President Obama's advisers.

Susan Dynarski: We need more information!
 References

Susan Dynarksi. So Much Student Debt, So Little Information. New York Times, March 22, 2015, Business section, p. 5.

Richard Fossey & Robert Cloud. In re Lamento: An Honest But Unfortunate Debtor is Entitled to Sleep at Night Without Worrying About Unpayable Student-loan Debt. Teachers College Record, February 23, 2015.

In re Lamento, 520 B.R. 667 (Bankr. N.D. Ohio 2014).

Myhre v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).