ECMC and the Department of Education are a couple of bullies: The Scott Farkus affair that never ends

Fortunately, we only see Scott Farkus once a year. He comes around every Christmas eve, when TBS runs The Christmas Story for 24 hours. Farkus, you remember, is the yellow-eyed bully that picks on Ralphie Parker and his little brother Randy. Farkus is always accompanied by his pint-sized sidekick, Grover Dill.

ECMC & DOE are real-life bullies for student debtors.

Scott Farkus, of course, is a fictional bully, but destitute student borrower are tormented by a real-life bully--Educational Credit Management Corporation. ECMC,a so-called fiduciary of the U.S Department of Education, gets well paid to hound student-loan debtors who naively try to shed their student loans in bankruptcy to get a fresh start.

Would you like some examples of ECMC's bullying behavior? Here are a few:

• ECMC opposed bankruptcy relief for Janet Roth, a woman in her 60s with chronic health problems, who was living on Social Security income of $774 a month. 

• ECMC successfully blocked Janice Stephenson, a woman in her fifties, from discharging her student loans in bankruptcy--loans that were almost 25 years old. At the time Stephenson filed for bankruptcy, she was living on about $1,000 a month and had a history of homelessness.

• Last year, a bankruptcy judge slapped ECMC with punitive damages for repeatedly garnishing the wages of Kristin Bruner-Halteman, a bankrupt student debtor who worked at Starbucks. ECMC violated the automatic stay provision more than 30 times, the bankruptcy court ruled. And how much money was at stake? Ms. Bruner-Halteman only owed about $5,000.

So Scott Farkus, in a corporate form, is alive and well in American bankruptcy courts.

And Grover Dill, Farkus's little toadie, is also alive and well. The Department of Education itself bullies student borrowers in bankruptcy, almost as cruelly as ECMC.  And here are a few examples:

• In Myhre v. Department of Education, DOE fought Bradley Myhre, an insolvent quadriplegic who tried to discharge a modest student loan in bankruptcy. DOE lost that one. The court commended Mhyre for his courage: he was working full time but he had to employ a caregiver to feed and dress him and drive him to work. 

• DOE tried unsuccessfully to persuade a Missouri  bankruptcy court to deny bankruptcy relief to Michael Abney, a single father in his 40s who was living on $1,300 a month and was so poor he rode a bicycle to work because couldn't afford a car. 

• Just a few months ago, the Eighth Circuit Bankruptcy Appellate Panel ruled against DOE, which had tried to keep Sara Fern from discharging her student debt in bankruptcy. Fern is a single mother of three children who takes home $1,500 a month from her job and supplements her income with food stamps and public rent assistance.

Have I described bullying behavior by ECMC and DOE? Of course I have. Every single time DOE or ECMC shows up in bankruptcy court, the argument is the same: "This deadbeat doesn't deserve bankruptcy relief, your honor. Put the worthless son of a b-tch in a 20- or 25-year income-based repayment plan."

In the past, bankruptcy courts were persuaded by these callous arguments, but judges are beginning to return to their duty. I predict the day is soon coming when a federal appellate court will overrule the precedents that have favored ECMC and DOE--most notably the harsh Brunner ruling that most federal circuits have adopted.

But for now, the bullying goes on.  Just like Scott Farkus and Grover Dill, ECMC and DOE lie in wait for hapless debtors who stagger into bankruptcy court. ECMC has accumulated $1 billion in unrestricted assets while engaging in this shameful behavior, and the federal government pays ECMC's legal fees. 

References

Abney v. U.S. Department of Education, 540 B.R. 681 (W.D. Mo. 2015).


Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Fern v. FedLoan Servicing, 563 B.R. 1 (8th Cir. BAP 2017).

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

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

Roth v. Educational Management Corp., 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011). aff'd, 475 B.R. 286 (D. Mass. 2012).

Bear Baiters: Creditors' Lawyers Make Sport of Distressed Student-Loan Debtors Who Stumble Into the Bankruptcy Courts

Bear-baiting is a blood sport  involving the worrying or tormenting (baiting) of bears. 

Wikipedia

Bear baiting is an ancient sport in which spectators sit in an arena and watch dogs attack a chained bear. Traditional bear baiting is outlawed in the United States, but a modern variation is still legal and practiced all over America.

In the new format, student-loan debtors substitute for the bear, lawyers and judges take the place of vicious dogs, and the venue has been changed from sporting arenas to the bankruptcy courts.

Here are some bear-bating examples. Jane Roth, a 68-year old woman with chronic health problems, filed for bankruptcy to discharge more than $90,000 in student-loan debt--almost three times more than she actually borrowed. At the time of her bankruptcy filing, Roth was living on $774 a month, and it was clear she would never pay back the 90 grand she owed. 

Educational Credit Management (ECMC), her main creditor, opposed a bankruptcy discharge and litigated the matter all the way to the Ninth Circuit's Bankruptcy Appellate Panel. It must have been great fun for the lawyers, and I'm sure they were well paid for harrying Ms. Roth. Unfortunately for ECMC, the Ninth Circuit's BAP put an end to the fun, and discharged Ms. Roth's student-loan debt, ruling it would be futile to put her in a long-term loan repayment plan.

And here is another example. Janice Stevenson, a woman in her 50s, filed for bankruptcy to discharge $114,000 in student-loan debt, far more than she originally borrowed. Stevenson had a record of homelessness, and at the time of her bankruptcy proceeding, she was living in publicly-subsidized housing on an income of $1,000 a month, which included short-term unemployment benefits.

Judge Joan Feeney, a Massachusetts bankruptcy judge, refused to discharge Ms. Stevenson's student loans in bankruptcy. Instead, the judge concluded that Ms. Stevenson was a candidate for a long-term income-based repayment plan, a plan that would obligate her to make student-loan payments for 25 years--a half century after she took our her first student loan!

In my view, the attorneys in the Roth case, the Stevenson case, and dozens of other student-loan bankruptcy cases, are bear baiters. Debtors stand utterly defenseless in the bankruptcy courts--many without  lawyers--like chained bears, while heartless attorneys for the Department of Education, ECMC, or another student-loan creditor make sport of their plight. The creditors' attorneys get paid and go home to eat nice dinners and dream of their next exotic vacation.  And all too often, student-loan debtors walk out of the bankruptcy courts facing almost a lifetime of indebtedness that they cannot discharge.

So this is the national situation:  Over 40 million people owe money on student loans, and at least 20 million are unable to pay it back. Seven million have defaulted, while others are delinquent or in deferment plans or long-term income-based repayment plans.

Millions of people are their seeing loan balances grow due to accruing interest, penalties, and collection fees. In fact, it is not uncommon for people to owe two or even three times what they borrowed. Most of these people deserve relief, and the only place they will find it is in the bankruptcy courts.

Fortunately, a few compassionate bankruptcy judges and federal appellate courts are ruling in favor of student-loan debtors and granting them relief from their crushing debt.  The Roth case, in particular, is hugely important, because the Ninth Circuit's Bankruptcy Appellate Panel applied principles of equity to discharge Jane Roth's debt.

But only time will tell whether the bankruptcy courts will be places where honest but unfortunate debtors can find relief or whether they will continue to be bear-baiting arenas. 

References

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP  2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).