Saturday, September 24, 2016

Free bankruptcy attorneys for destitute student-loan debtors: Why the heck not?

The New York Times editorialized yesterday that tenants should have access to free attorneys when their landlords start eviction proceedings against them. As the Times put it, "There are few legal fights more lopsided than landlords suing to evict their lower-income tenants." The Times commended New York Mayor Bill de Blasio for his plan to provide municipal funding to hire legal help for the city's low-income tenants.

I agree with the Times; providing tenants with legal assistance when they face eviction would be a good thing. But let's expand that idea a bit. Why not provide free bankruptcy attorneys for destitute student-loan debtors?

After all, almost all college-loan borrowers who try to discharge their student loans in bankruptcy are too poor to hire lawyers to steer them through the bankruptcy process. And when they go to bankruptcy court, they almost always face a platoon of lawyers who argue that their student loans should not be discharged.

The debtor either faces government lawyers dispatched by the U.S. Department of Education or private attorneys hired by Educational Credit Management Corporation (ECMC) or  another federally authorized debt collector. For example, in the Acosta-Conniff bankruptcy case, now on appeal to the Eleventh Circuit, ECMC has six attorney to defend its interests. Six!

Currently, this country has thousands of unemployed lawyers.  As Joshua Wright reported recently, American law schools are turning out two attorneys for every available job. Why not put some of these unemployed law graduates to work defending student-loan debtors in the bankruptcy courts?

I will tell you why not. The Department of Education does not want anyone to discharge their student loans in bankruptcy. And when I say anyone, I mean anyone. In a 2013 case, DOE fought bankruptcy discharge for a quadriplegic who was working full time but who did not make enough money to pay his live-in caregiver and still pay off his student loans.

Lynne Mahaffie, a DOE Under Secretary, issued a letter in July 2015 outlining when DOE would not oppose bankruptcy discharge for distressed student-loan debtors; but that letter was misleading. In fact, DOE and its debt collectors fight almost every debtor who seeks to discharge student loans in bankruptcy. If DOE is going to oppose bankruptcy relief for a quadriplegic, then you know it is going to oppose relief for almost everyone.

DOE, Congress, and the higher education industry know that the whole corrupt, mismanaged, and wildly overpriced system of higher education in the United States would collapse without the student loan program; and the student loan program's continued existence depends on the fiction that students are paying back their loans.

In fact, they are not paying back their loans; but the government has largely managed to hide that fact from the public. If insolvent student-loan debtors were able to discharge their student loans in bankruptcy, millions of people would be entitled to relief. And if that were to occur, then it would be apparent to everyone that the federal student-loan program is itself bankrupt; and the program would collapse.

And Congress, DOE, and the higher education industry want to postpone the day of reckoning for as long as possible.

References

Editorial. A Right to a Lawyer to Save Your Home. New York Times, September 23, 2016, p. A26. Accessible at http://www.nytimes.com/2016/09/23/opinion/a-right-to-a-lawyer-to-save-your-home.html?_r=0

Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015. Accessible at https://www.ifap.ed.gov/dpcletters/attachments/GEN1513.pdf

Myhre v U.S. Department of Education, 503 B.R. 698 (Bakr. W.D. Wis. 2013). Accessible at http://www.wiwd.uscourts.gov/wiwb/Decisions/Decisions_rdm/2013/Myhre.pdf

Joshua Wright. The Oversaturated Job Market for Lawyers Continues, and On-The-Side Legal Work Grows. Economicmodeling.com, January 10, 2014. http://www.economicmodeling.com/2014/01/10/the-oversatured-job-market-for-lawyers-continues/

1 comment:

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