Showing posts with label Myhre v. Department of Education. Show all posts
Showing posts with label Myhre v. Department of Education. Show all posts

Monday, June 25, 2018

Should courts look for bad faith when distressed student-loan debtors ask for bankruptcy relief? Further reflections on Smith v. Department of Education

Distressed debtors cannot discharge student loans unless they can show their loans constitute an "undue hardship" to themselves and their dependents. Congress did not define undue hardship in the Bankruptcy Code, so it was left to the courts to define the term.

Most courts have adopted the Brunner test for determining when a student loan is an undue hardship that can be discharged in bankruptcy. That test has three parts:

1) Can the debtor pay back the loan while maintaining a minimal standard of living?
2) Will the debtor's financial circumstances change during the lifetime of the loan?
3) Did the debtor handle his or her loans in good faith?

In Smith v. Department of Education, decided a few months ago, Judge Frank Bailey, a Massachusetts bankruptcy judge, explicitly criticized the Brunner test's  "good faith" component:
[A]ny test that allows for the court to determine a student debtor's good or bad faith while living at a subsistence level, virtually strait-jacketed by circumstances, displaces the focus from where the statute would have it: the hardship. It also imposes on courts the virtually impossible task of evaluating good or bath faith in debtors whose range of options is exceedingly limited and includes no realistic hope of repaying their loans to any appreciable extent. . .(p. 566)
 Judge Bailey argued for a simpler and fairer standard for determining when a student loan can be discharged in bankruptcy: "If a debtor has suffered a personal, medical, or financial loss and cannot hope to pay now or in the reasonably reliable future," the judge reasoned, "that should be enough" (p. 565) (italics supplied).

Eliminating the good faith component of the Brunner test would have a huge impact on student-loan bankruptcy jurisprudence because the Department of Education and its thug debt collectors almost always argue that a debtor filed for bankruptcy in bad faith. And this is ironic because it is the Department of Education, not student-loan debtors, that repeatedly demonstrates bad faith in the bankruptcy courts.

Let's take the Smith case as an example:

1) First of all, the U.S. Department of Education has publicly proclaimed it will not oppose bankruptcy relief for student debtors who are disabled. Mr. Smith is disabled; and Smith and his mother subsist entirely on Smith's monthly disability check, food stamps, and his mother's tiny Social Security income. Thus, DOE was opposing Mr. Smith's plea for bankruptcy relief in direct contradiction to DOE's own policy. In my opinion, that shows DOE's bad faith.

2) In a 2015 letter, a Department of Education official said DOE would not oppose bankruptcy relief when it made no economic sense to do so. Smith's adversary proceeding stretched out over five days, taking up Judge Bailey's time; and both Smith and DOE had lawyers. (In fact, DOE had two lawyers.) Smith only borrowed $29,000; and the litigation expenses almost certainly exceeded that amount. In my view, DOE's decision to chase Smith into bankruptcy court is additional evidence of bad faith.

3) Finally, DOE insisted Smith should be put in a long-term income-based repayment plan, even though it admitted Smith's income was so low that his monthly loan payments would be zero. So what was the point of fighting Smith in bankruptcy court? Again, this is more evidence of DOE's bad faith.

In fact, the Department of Education and the student loan guaranty agencies (ECMC in particular) almost always argue that a distressed student-loan debtor filed for bankruptcy in bad faith. And this is true even when the debtor is hovering on the brink of homelessness.

After all, in the Myhre case, DOE opposed student-loan debt relief for a quadriplegic whose expenses exceeded his income.  In the Abney case, DOE fought Kevin Abney, who was so poor he did not own a car and traveled to work on a bicycle. And in the Stevenson case, ECMC objected when Janice Stevenson, a woman with a record of homelessness and who lived in subsidized housing, tried to discharge almost $100,00 in student loans.

So Judge Bailey is right. The federal courts should stop asking whether down-and-out student-loan debtors handled their student loans in good faith. The only important questions are these: Can the debtor pay back his or her student loans? Will the debtor ever be able to pay back those loans?

And if the courts continue to insist on looking for bad faith, they should look for it by the Department of Education, ECMC, and the entire gang of government-subsidized debt collectors.



References

Jillian Berman. Why Obama is forgiving the student loans of almost 400,000 peopleMarketwatch.com, April 13, 2016.


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

Michael Stratford. Feds May Forgive Loans of Up to 387,000 BorrowersInside Higher Ed, April 13, 2016. 

Smith v. U.S. Department of Education (In Re Smith), 582 B.R. 556 (Bankr. D. Mass 2018).

Stevenson v. ECMC, Case No. 08-14084-JNF, Adv. P. No. 08-1245 (Bankr. D. Mass. August 2, 2011).

Some physical or mental impairments can qualify you for a total r permanent disability discharge on your federal student loans and/or TEACH grant service obligation. U.S. Department of Education web site (undated).

Sunday, April 13, 2014

Two Americas--Where one man makes more in 20 minutes than a widow survives on for a year

Two stories in today's Times caught my eye. According to a report in the Business section, Larry Ellison, CEO of Oracle, makes $37,692 an hour--that's right, 37 grand an hour. Meanwhile, another Times article told the story of Carol Cascio, a widow, who lives on $900 per month. She had hoped for an additional $400 per month from her deceased husband's pension--which would just be a few seconds of Mr. Ellison's salary--but the pension fund went belly up and she will get nothing.

Obama in Silicon Valley
Photo credit: Pete Souza/White House

And the disparity is even worse than that. According to the Times story, Ms. Cascio borrowed money to finance her daughter's education. In fact, she was hoping to pay back the loan with the pension money she will not be getting.

There's something wrong with a nation in which one American makes three times as much in an hour as another person lives on in a year. And this is taking place in Barack Obama's America--the man who was supposed to bring us hope and change. And yet President Obama spends much more time with people like Mr. Ellison--wealthy people who can make campaign contributions--than people like Carol Cascio, who can do nothing to help Mr. Obama fill the Democratic Party's campaign coffers.

At least Ms. Cascio can take bankruptcy, you may be thinking, and discharge the education loan, assuming it has not been paid back. Probably not. Even someone in Ms. Cascio's situation will find it difficult to discharge an educational loan in bankruptcy. In fact, the Department of Education recently opposed bankruptcy discharge for a student-loan debtor who is a paraplegic and only owed $14,000! That's right, President Obama's Department of Education wanted the young man who is paralyzed from the neck down to sign up for a 25-year repayment plan. Fortunately, a federal bankruptcy judge was a bit more compassionate than the Department of Education and discharged this poor man's education loan.

We should think long and hard about the nation we have become--a nation in which wealthy pet owners call themselves "pet parents" and buy toys for their dogs to stimulate their pets' brains; a nation in which our leading and most respected newspaper printed a story about the new fashion trend in which wealthy women groom their public hair; a nation in which millions of people living on the boundary of poverty have college loans they can't pay back.

The people who run our country--President Obama's arrogant, power obsessed Ivy League bureaucrats; the media elite; and corporate oligarchs like Oracle's Larry Ellison--actually believe they are smarter and more sensitive than the average American holding down a job and raising a family.

But the people who run our country are nothing more than self-absorbed children who grab for all the power, money and recognition they can get while millions of decent Americans suffer economic hardship--hardship that grows worse with each passing day.

The people who run our country believe they are liberal; they believe they are sensitive; they believe they are progressive. But all it means to be a liberal in today's America is to vote the Democratic ticket, watch Jon Stewart on television, and show a proper degree of scorn toward the smucks who didn't get in one the action--perhaps a smuck like you who borrowed money to get a college education and don't make enough money to pay back your loans.

References

Peter Eavis. Invasion of the Supersalaries. New York Times, April 13, 2014, Business Section, p. 1.

David Hochman. You'll Go Far My Pet. New York Times, April 13 2014, Sunday Styles Section, p. 1.

Marisa Meltzer. Below the Bikini Line, A Growing Trend. New York Times, January 29, 2014. Available at: http://www.nytimes.com/2014/01/30/fashion/Brazilian-bikini-wax-women-hair-removal.html?_r=0


Myhre v. United States Department of Education, 503 B.R. 698 (Bkrtcy Rep. Wis. 2013).

Mary Williams Walsh, Thought Secure, Pooled Pensions Teeter and Fall. New York Times, April 13, 2014, p. 1.