Tuesday, December 22, 2015

The Department of Education's Lynn Mahaffie wrote a disingenuous letter outlining when the Department of Education will not oppose bankruptcy discharge for student-loan debtors under the Undue Hardship rule

The Department of Education's Lynn Mahaffie issued a letter last July outlining when DOE and its debt collectors will not oppose bankruptcy discharge for student-loan debtors.  In fact, Mahaffie's letter is disingenuous.

Reading Mahaffie's letter, you might think DOE and its debt-collecting lackeys would not oppose a bankruptcy discharge for student-loan debtors who are in truly distressing circumstances or when it would be pointless to try to collect the debt. But you would be wrong.

In fact, DOE and its debt collectors oppose bankruptcy discharge for nearly everyone.

Here are some examples:

In Myhre v. Department of Education, DOE opposed bankruptcy discharge for a quadriplegic student-loan debtor who was working almost full time but could not make enough money to pay his living expenses, including the cost of a full-time caregiver.

In Roth v. Educational Credit Management Corporation, ECMC, perhaps DOE's most ruthless debt collector, opposed a bankruptcy discharge for a 68-year-old woman with chronic health issues who was living on a Social Security check of less than $800 a month.

In Abney v. U.S. Department of Education, decided after Mahaffie's letter was issued, DOE opposed a bankruptcy discharge for a man living on less than $1200 a month and who rode a bicycle to work because he couldn't afford a car.  This poor guy was making child-support payments that almost equaled his take-home pay and had lost his home to foreclosure. In fact, this man's situation was so desperate that he lived for a time in the cab of one of his employer's trucks. And DOE demanded that he be put in a 25-year repayment plan!

Mahaffie's letter listed several factors for determining when to oppose a student-loan debtor's bankruptcy discharge, including the debtor's age and health status. But DOE is garnishing the Social Security checks of 150,000 elderly people and fighting bankruptcy relief without regard to a student-loan debtor's health status. Hey, if DOE fights bankruptcy discharge for a quadriplegic, it fights it for everyone.

And Mayaffie also indicated that DOE and student-loan creditors wouldn't fight bankruptcy discharge if litigation costs outweighed the likely benefits. But in Kelly v. Educational Credit Management Corporation, ECMC chased a student-loan debtor through the federal courts for seven years!

Frankly, Mahaffie's letter is insincere. Contrary to the representations in her letter, the Department of Education and Educational Credit Management Corporation fight nearly every student-loan bankruptcy with almost desperate ferocity.  It knows that millions of people are entitled to bankruptcy relief from their student-loan debt under standards being laid down by compassionate bankruptcy courts. And it knows if student-loan debtors start getting the relief to which they are entitled under basic principles of fairness and justice, the student loan program will collapse.

Picture of Lynn Mahaffie, Deputy Assistant Secy for Policy, Planning and Innovation, U.S. Dept of Education
Lynn Mahaffie, J.D.
DOE's Deputy Assistant Secretary wrote a disingenous letter


Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015. 

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

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


  1. Another fine post! Steve Rhode (Get-Out-of-Debt-Guy) also wrote about Abney v. DOE and the the court's decision to NOT force this debtor into an IBRP and granted a discharge under 11 USC §523(a)(8). Rhode's blog is here:https://getoutofdebt.org/97661/bankruptcy-court-tells-dept-ed-go-shove-ibr-unrealalistic

  2. This reads like the worst horror story imaginable. Why? Because this is really happening to people! I for one keep writing questions to the worthless Presidential race candidates and haven't had one of them asked during their absurd debate freakshow. I think people are going to have to do what we do best and hurt the economy.

    Stay home and do nothing. What happens when Americans go on strike? I'm curious to find out.

  3. Excellent piece again, Richard!!

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