Tuesday, February 23, 2016

Alan Collinge is too pessimistic about bankruptcy relief for student-loan debtors: The Times May Be A-Changin'

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won't come again
And don't speak too soon
For the wheel's still in spin
And there's no tellin' who
That it's namin'
For the loser now
Will be later to win
For the times they are a-changin'.
Bob Dylan
Alan Collinge wrote an interesting book a few years ago entitled The Student Loan Scam, which I reviewed in the Journal of Law and Education. He is very knowledgeable about the student-loan crisis, and much that he has to say about this problem is useful. Nevertheless, he is far too pessimistic about bankruptcy relief for student-loan debtors.

In an interview with Peter J. Reilly, a Forbes Magazine contributor, Collinge expressed a very bleak view regarding a distressed student-loan debtor's chances in the bankruptcy court. As Reilly summarized Collinge's position, "Alan argued that the chance of bankruptcy relief remains remote, and that the murmurers may be consultants who are engaging in bait and switch." In the interview itself, Collinge said, "Almost no well-versed lawyer will recommend it because of the unlikelihood of winning."

It is true that the Department of Education and its various loan collection agencies have vigorously fought bankruptcy relief for student-loan debtors in almost every case. As Colling observed:
[M]ake no mistake, even for the most destitute borrowers, the Department of Education, ECMC, and the entire lending industry are continuing to pour massive resources into defeating them in bankruptcy court by using shameless fear tactics with the judges, who they pressure ceaselessly--and usually successfully--to make bankruptcy determinations against [ ] these most impoverished individuals rather than for them.
And I think Collinge is also correct to say that so-called "debt coaches" and consultants may be dispensing inaccurate information about bankruptcy relief for the purpose of signing up distressed student-loan debtors in "loan rehabilitation" plans whereby student loans are repackaged into larger loans due to the various fees and penalties that get tacked on to the original principal.

But Collinge is just wrong to disparage the bankruptcy option for discharging student loans. Several bankruptcy courts have ruled with surprising compassion and common sense toward student-loan borrowers in recent years--relieving honest but unfortunate debtors of their student-loan obligations. Remarkably, many student-loan debtors have been successful in the bankruptcy courts even when they went to court without lawyers. Abney v. U.S. Department of EducationAcosta-Conniff v. ECMC, Johnson v. Sallie Mae, and Precht v. U.S. Department of Education--all decided within the last year--are recent victories for student-loan debtors who represented themselves in bankruptcy court.

It is true that some student-loan debtors have lost their cases in the bankruptcy courts. Butler v. ECMC, decided last month, is a particularly heartbreaking case because Brenda Butler's situation was more dire than several student-loan debtors who won their cases. But Roth v. ECMC and Krieger v. ECMC, two appellate-level decisions, are an indication that the federal courts are rethinking their harsh stance toward student-loan debtors.

One thing is certain. Overburdened and insolvent student-loan debtors have nothing to lose by trying to get their student-loan debt discharged in bankruptcy. And it is not helpful or useful to tell people that bankruptcy relief for student-loan debt is nearly impossible.

As Bob Dylan put it,"[D]on't speak too soon for the wheel's still in spin." In other words, the times may be a-changing.


Acosta-Conniff v. Educational Credit Corporation, 536 B.R. 326 (M.D. Ala. 2015).

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

Fossey, R. (2009). Review of The Student Loan Scam: The Most Oppressive Debt in U.S. History—And How We Can Fight Back, by Alan Michael Collinge. Journal of Law and Education, 38, 715-718 (2009). Available at http://www.studentloanjustice.org/fosseybookreview.pdf

Johnson v. Sallie Mae, ., No. 11-23108, Adv. No. 11-6250,  2015 WL 795830 (Bankr. D Kan. Feb. 19, 2015).

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).

Precht v. United States Department of Education, AD PRO 15-01167-RGM (Bankr. E.D. Va. Feb. 11, 2016 (Consent Order).

Peter J. Reilly. Interview With Student Loan Activist Alan Collinge On Bankruptcy Protection, Forbes, October 28, 2015. Available at http://www.forbes.com/sites/peterjreilly/2015/10/28/interview-with-student-loan-activist-alan-collinge-on-bankruptcy-protection/#64fa9b7a6438

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


  1. Yes, we can only hope times are changing across the board! With nearly $1.4 Trillion in outstanding loans, and 160,000 having social security and government pensions garnished there is a huge need for a major revision in the system. Actually my belief is that the student debt crisis may be included in a world monetary crash of which we have proportionately never seen! The bubble of US and World Debt is not sustainable and sooner than later it is going to burst. Fortunately I was one who was able to achieve full discharge of my student loan debt of nearly $130,000.00 minus nearly $30,000.00 in usury (penalties and other fees -which they do not describe) and ended up clearing my slate of $98,454.69 by filing my own Adversary Proceeding as a Pro Se plaintiff/debtor here in Northern Virginia under the nose of the Dept. of Education and the Washington elite just a few miles up the road.

  2. It's interesting that Collinge maintains that opinion since the issue that holds people back the most from getting their loans adjusted or discharged completely has more to do with the lack of trying.

  3. What interesting is that the entire legal community apparently lacks the will and/or the courage to challenge the constitutionality of 11 USC 523(a)(8) on equal protection grounds, uniformity grounds, or even challenge the validity of the federal student loan contract based upon unconscionability, or a wide range of universal omissions that are committed by the lending system and the schools against the borrowers prior to signing for their loans.

    What is less interesting, but still interesting: I estimate (and I tend to be an excellent guesser on this issue) that 99% OR MORE of the defaulted borrowers that are unfortunate enough to find their way into consultation with Steve Rhodes are very gently guided NOT into attempting an adversarial proceeding in bankruptcy court, but rather into "loan rehabilitation" or other avenue that are extraordinarily lucrative for Mr. Rhodes.

    What is less interesting still, but still interesting is the fact that the Huffington Post allows Mr. Rhodes to ply his wares with desperate, vulnerable borrowers on their pages. Does he pay for the space? If so, isn't that a violation of the most basic principles of journalism?

  4. ps. Remember the Murphy Case? That was just the latest in a long, long line of cases that was supposed to "Change the game" with regards to 11 USC 523(a)(8).

    How did that work out? Oh yea...It didn't. Another settled case, under seal.

    When is the legal community going to grow a pair, admit that they are incapable of touching the Brunner test, and take on the real injustice here: 11 USC 523(a)(8) Itself??!! We used to have courageous, bold people in this country fighting blatant injustices like what the federal student loan system inflicts upon the citizenry. Where have they gone?

  5. Hmmmm:

    Here we are, almost September 2017 and nothing has been accomplish by a Republic Congress during the last few years of an Obama administration going into Trump's administration.

    That is one topic Dems might even support with Trump.

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