Showing posts with label fresh start. Show all posts
Showing posts with label fresh start. Show all posts

Saturday, October 7, 2017

Alan and Catherine Murray discharged more than $200,000 in student loans in a Kansas bankruptcy court and their victory was affirmed on appeal: Good news for middle-income college borrowers

In a previous essay, I wrote about Alan and Catherine Murray, a married couple in their late forties who defeated Educational Credit Management Corporation in a Kansas bankruptcy court.  ECMC appealed, and the Murrays prevailed again--a victory that has important implications for middle-income student-loan debtors.

The Murrays took out student loans in the 1990s to obtain undergraduate degrees and master's degrees. Their total indebtedness was $77,000, which they consolidated in 1996 at an interest rate of 9 percent.

Over the years, the Murrays paid $54,000 toward paying off these loans--70 percent of the amount they borrowed. But they obtained economic hardship deferments during periods of financial stress, which allowed them to skip some loan payments.  And they entered into an income-based repayment plan to lower their monthly payments to a manageable level.

Although the Murrays handled their student loans in good faith, interest on their debt continued to accrue; and they made no progress toward paying off their debt. In fact, when they filed for bankruptcy in 2014, their loan balance had ballooned to $311,000--four times what they borrowed!

Judge Dale L. Somers, a Kansas bankruptcy judge, gave the Murrays a partial bankruptcy charge. It was clear, Judge Somers ruled, that the Murrays could not pay off their total student-loan indebtedness and maintain a minimal standard of living. And it was also clear that their financial situation was not likely to change. Finally, Judge Somers concluded, the Murrays had handled their student loans in good faith--an essential requirement for discharging student loans in bankruptcy.

On the other hand, Judge Somers determined, the Murrays could pay off the original amount they borrowed ($77,000) and still maintain a minimal standard of living. Thus, Judge Somers discharged the accumulated interest on the Murrays' debt, but required them to pay back the original amount they borrowed.

ECMC, the Murrays' ruthless creditor, appealed Judge Somers' decision. ECMC argued, as it always does, that the Murrays should be put in a long-term income-based repayment plan (IBR) that would last from 20 or 25 years.

But U.S. District Court Judge Carlos Murguia, sitting as an appellate court for the appeal, affirmed Judge Somers' decision. "The court agrees with Judge Somers' findings and conclusions that [the Murrays] made a good faith effort to repay their loans," Judge Murguia wrote.

Significantly, Judge Murguia, ruling in the capacity of an appellate judge, explicitly rejected ECMC's argument that the Murrays should be placed in an IBR and that none of the Murrays' $311,000 debt should be forgiven.

"The court disagrees," Judge Murguia wrote. "Under the circumstances of this case, debtors' payments under an IBR plan are insufficient even to stop the accrual of additional interest, and such payments directly contravene the purpose of bankruptcy."  Judge Murguia noted that Judge Somers had not discharged all of the Murrays' indebtedness--only the accumulated interest. "He discharged that portion--the interest--that had become an undue hardship on debtors, denying them a fresh start."

ECMC v. Murray is an important case for two reasons: First, this is one of the few student-loan bankruptcy court decisions that have granted relief to middle-income student borrowers. The Murrays' combined income was about $95,000.

Second, the key ruling by both Judge Somers and Judge Murguia was their finding that the interest on the original debt would constitute an undue hardship for the Murrays if they were forced to pay it back. Furthermore, this would be true even if the Murrays were placed in an IBR because the monthly payments under such a repayment plan were insufficient to stop the accrual of interest.

There are hundreds of thousands of people in circumstances very similar to the Murrays. Their loan balances have doubled, tripled or even quadrupled due to accumulating interest. People in this situation will never pay off their total indebtedness. But most of these people, like the Murrays, can pay off the amount they originally borrowed if only the accumulated interest were wiped out.

Let us hope student loan debtors situated like the Murrays will learn about ECMC v. Murray and find the courage to file bankruptcy and seek a discharge of their student loans--or at least the accumulated interest.  After all, it is the accumulated interest, penalties and fees that have put millions of student borrowers in a hopeless situation. The Murray decision offers a fair and reasonable solution for these people and gives them a fresh start. A fresh start, after all, is the core reason that  bankruptcy courts exist.


References

Murray v. Educational Credit Management Corporation (Bankr. D. Kan. 2016), aff'd, No. 16-2838 (D. Kan. Sept. 22, 2017).


Thursday, May 12, 2016

Educational Credit Management Corporation v. Acosta-Conniff; A lifetime of Indebtedness is the future for most college borrowers

James Howard Kunstler wrote one of his best essays recently about America's opioid epidemic., and he began his essay with this observation:
 While the news waves groan with stories about "America's Opioid Epidemic," you may discern that there is little effort to actually understand what's behind it, namely the fact that life in the United States has become unspeakably depressing, empty, and purposeless for a large class of citizens.
Kunstler went on to describe life in small town and rural America: the empty store fronts, abandoned houses, neglected fields, and "the parasitical national chain stores like tumors at the edge of every town."

Kunstler also commented about people's physical appearance in backwater America: "prematurely old, fattened and sickened by bad food made to look and taste irresistible to con those sick in despair." And he also described how many people living in the forgotten America spend their time: "trash television, addictive computer games, and their own family melodramas concocted to give some narrative meaning to lives otherwise bereft of event or effort."

There are no jobs in flyover America. No wonder opioid addiction has become epidemic in the old American heartland. No wonder death rates are going up for working-class white Americans--spiked by suicide, alcohol and drug addiction.

I myself come from the desperate heartland Kunstler described. Anadarko, Oklahoma, county seat of Caddo County, made the news awhile back due to four youth suicides in quick succession--all accomplished with guns. Caddo County, shaped liked the state of Utah, can easily be spotted on the New York Times map showing where drug deaths are highest in the United States. Appalachia, Oklahoma, the Rio Grande Valley, and yes--Caddo County have the nation's highest death rates caused by drugs.

Why? Kunstler puts his finger on it: "These are the people who have suffered their economic and social roles in life to be stolen from them. They do not work at things that matter.They have no prospect for a better life . . . ."

Now here is the point I wish to make. These Americans, who now live in despair, once hoped for a better life. There was a spark of buoyancy and optimism in these people when they were young. They believed then--and were incessantly encouraged to believe--that education would improve their economic situation. If they just got a degree from an overpriced, dodgy for-profit college or a technical certificate from a mediocre trade school, or maybe just a bachelor's degree from the obscure liberal arts college down the road--they would spring into the middle class.

Postsecondary education, these pathetic fools believed, would deliver them into ranch-style homes, perhaps with a swimming pool in the backyard; into better automobiles, into intact and healthy families that would put their children into good schools.

And so these suckers took out student loans to pay for bogus educational experiences, often not knowing the interest rate on the money they borrowed or the payment terms. Without realizing it, they signed covenants not to sue--covenants written in type so small and expressed in language so obscure they did not realize they were signing away their right to sue for fraud even as they were being defrauded.

And a great many people who embarked on these quixotic educational adventures did not finish the educational programs they started, or they finished them and found the degrees or certificates they acquired did not lead to good jobs. So they stopped paying on their loans and were put into default.

And then the loan collectors arrived--reptilian agencies like Educational Credit Management Corporation or Navient Services.  The debt collectors added interest and penalties to the amount the poor saps borrowed, and all of a sudden, they owed twice what they borrowed, or maybe three times what they borrowed. Or maybe even four times what they borrowed.

Does this scenario--repeated millions of time across America over the last 25 years--drive people to despair? Does it drive them to drug addiction, to alcoholism, to suicide?

Of course not. And even if it does, who the hell cares?

References

James Howard Kunstler. The National Blues. Clusterfuck Nation, April 28, 2017.

Sarah Kaplan.'It has brought us to our knees': Small Okla. town reeling from suicide epidemicWashington Post, January 25, 2016.

Natalie Kitroeff. Loan Monitor Is Accused of Ruthless Tactics on Student DebtNew York Times, January 1, 2014.

Gina Kolata and Sarah Cohen. Drug Overdoses Propel Rise in Mortality Rates of Young Whites. New York Times, January 16, 2016.