Friday, February 14, 2020

Davis v. U.S. Department of Education: Another law graduate is denied student-loan bankruptcy relief

Few overburdened student-loan debtors attempt to get their loans discharged in bankruptcy. Most believe their student loans are not dischargeable as a matter of law. But among the small number of people who file for bankruptcy and try to get their student loans forgiven, a fair number are law-school graduates.

A handful of law-school graduates have been successful in bankruptcy court: the Barrett case out of California, the Hedlund case out of the state of Washington, and, more recently, the Rosenberg decision out of New York are examples of good outcomes for law graduates. But most are unsuccessful.

Davis v. U.S. Department of Education is the latest in a string of decisions in which a J.D. graduate with crushing debt is denied relief by a federal bankruptcy judge. Jeffrey Michael Davis graduated from John Marshall Law School in 2008, Apparently, Davis "performed poorly in law school" (p. 706), but he obtained an LL.M. degree (an advanced law degree) from John Marshall in 2013. At the time his adversary case was decided, he was 41 years old.

After graduating from law school, Davis sought full-time employment but he was not able to find a steady job as a lawyer. After graduation, he worked as a document review attorney on a contract-to-contract basis.  In other words, in the 11 years since graduating from John Marshall Law School, he never secured a full-time job in the legal field.  His salary in 2018 was approximately $61,000, above the poverty level. Nevertheless, Davis was the father of a young child with disabilities, and his childcare expenses were significant.

Davis financed his law studies with student loans from both the federal government and a private lender. By the time he arrived in bankruptcy court, his total indebtedness was $351,000. According to Illinois Bankruptcy Judge Timothy Barnes, Davis made some payments on his DOE loans but had made no payments on his federal Stafford loans or his private loans.

Judge Barnes analyzed Davis's petition for relief under the three-part Brunner test and concluded that Davis did not meet even one of the three parts.

In Judge Barnes' opinion, Davis could not meet part one of the Brunner test because he could not show that he would be unable to maintain a minimal standard of living if forced to pay back his student loans.  In the judge's view, Davis had not lived frugally enough, noting disapprovingly that Davis subscribed to some streaming services.

The judge also pointed out that Davis had not applied for higher-paying jobs over the past four or five years. "In the absence of efforts to secure a higher-paying position, whether as an attorney or otherwise, and given the lack of other evidence regarding efforts to increase his income, [Davis] has failed to demonstrate that he has maximized or attempted to maximize his income" (p. 705).

Regarding part two of the Brunner test, Judge Barnes ruled that Davis "failed to demonstrate the existence of additional circumstances indicating that [he] will likely be unable to repay the Students Loans for a significant portion of the repayment period " (p. 707). The judge pointed out that Davis has at least 20 more years of earning potential.  The judge indicated that Davis had shown no unusual circumstances that would hinder him from finding a higher paying job.

Finally, Judge Barnes concluded that Davis had not been able to demonstrate that he had made good faith efforts to repay his loans. The fact that Davis had not made any payments on some of his loans "weighs against a finding of good faith" (p. 708). Judge Barnes ruled. And--as the judge had already indicated, he did not think Davis had tried to maximize his income, minimize his expenses, or look for a higher paying job.

I disagree with Judge Barnes' decision.  First, Judge Barnes is a lawyer himself. Surely he knows that the job market for lawyers in the U.S.  has been terrible since Davis graduated from law school in 2008. The judge should also know that the job possibilities for people who graduate from undistinguished law schools like John Marshall and who do not have stellar grades face particularly grim job prospects.

Finally, Judge Barnes should know that an L.L.M. degree from a lackluster law school like John Marshall often does not make a lawyer more marketable. In fact, for many J.D. graduates, an advanced degree in law merely adds to a lawyer's debt load.

In my view, the only question Judge Barnes should have considered when evaluating Mr. Davis's case is this: Can Mr. Davis repay $351,000 in student loans?

The answer to that question is undoubtedly no. Judge Barnes concluded that Barnes had not looked hard enough for a better job, but who would not look for better wages if a higher paying job was at least a remote possibility.

I doubt very much whether Davis--who has a law degree and an advanced law degree--likes working on a contract-to-contract basis for $61,000 a year. But I feel sure he is doing the best he can.  Apparently, he has worked consistently in the field of law for 11 years. He should get some credit for that.

If the Department of Education thinks it achieved something by opposing Mr. Davis's request for student-loan relief, it is deluding itself.  I think it is highly likely that Davis will be forced into an income-based repayment plan that will end when he is 66 years old and that accruing interest on his debt will prevent him from ever paying off his loans--now more than a third of a million dollars.

A compassionate ruling, a sensible ruling, and the right ruling would be for Judge Barnes to forgive all of Davis's crushing debt and give him the fresh start. That is the bankruptcy courts' duty, after all, to give honest but unfortunate debtors a fresh start.

References

Davis v. U.S. Department of Education (in re Davis), 608 B.R. 693 (Bkrtcy N.D. Ill. 2019).

Monday, February 3, 2020

Another Catholic diocese faces bankruptcy: Should Catholics give a damn?

I don't know whether Rhett Butler was a Catholic, but Catholics should adopt Rhett's attitude about the rising tide of bankruptcies among America's Catholic dioceses.  Frankly, my dears, we should not give a damn.

Nineteen Catholic dioceses have filed for bankruptcy in recent years, due to payouts forced on the Church by child-abuse victims, almost all of whom were raped or sexually abused by Catholic priests. The National Catholic Reporter compiled a list of 131 financial settlements between the Catholic Church and child abuse victims--most of them for a million dollars or more.

According to the Buffalo News, the Diocese of Buffalo, New York may be the twentieth American diocese to file for bankruptcy.  NCR's Carolyn Thompson reported a few days ago that the Buffalo Diocese has already paid out about $18 million to 100 child abuse victims and has 220 lawsuits pending against it.

Not surprisingly, the sexual abuse scandal has demoralized Catholic laypeople all over the United States. No one knows how many Catholics have left the Church due to this moral catastrophe, but it is clear that Catholic laypeople have drastically cut back on their financial contributions to the Church.

The Buffalo Diocese provides an example. Jay Tokasz, writing for the Buffalo News, reported that the diocese suffered a $5 million budget deficit last year even though it cut its budget by $1.9 million.

Donations to the diocese had dropped by a whopping one third in just one year.  In 2018, the Buffalo Diocese received approximately $18 million in donations. In 2019, donations fell to about $13 million.  That's a huge vote of no confidence in the Buffalo hierarchy's leadership. 

Catholics are frustrated and enraged by the Church’s sexual abuse scandal. How, we ask ourselves, can a church that calls itself the Bride of Christ allow men to rape and sodomize children—both boys and girls?  How could the Church allow rapists to continue in their ministry and how could it have resorted to sleazy legal maneuvers to hide the scandal?

The arrogance and indifference of the American Catholic bishops are destroying the Church’s financial viability—which is a good thing. Lay Catholics have simply stopped giving money to the son-of –a-bitches who have countenanced human trafficking in parish rectories for more than half a century.

 In fact, it is not too much to say that many Catholic bishops are themselves human traffickers who moved pedophiles around from parish to parish. Instead of bringing children to pedophiles, the Church sent pedophiles to the children. So much more efficient!

I stopped giving money to the Catholic Church about three years ago. My wife and I now make regular monthly contributions to Casa Juan Diego, the Catholic Worker hospitality house in Houston, Texas. We know that every dollar we send to Casa Juan Diego will go to help the poor.

I urge other disappointed Catholics to join me. Stop funding the creeps who run the Catholic Church and give it to people who are doing Christ’s work—whether or not they are Catholics. 


*****
·        According to the National Catholic Reporter, the Catholic Church has paid out more than $3 billion in settlements and court awards to child abuse victims.  The following is a list of 131 settlements and the number of victims in each case (as reported by NCR).

·        2000-03-15 — Santa Rosa, California — $1.6 million — 4
·        2000-12-04 — Los Angeles, California — $5.2 million — 1
·        2001-03-08 — Bridgeport, Connecticut — $15 million — 26
·        2001-12 — Oklahoma City, Oklahoma — $5 million — 1
·        2002-01-30 — Tucson, Arizona — $14 million — 11
·        2002-04-01 — Orange and LA, California — $1.2million — 1
·        2002-06 — Los Angeles, California — $1.5 million — 1
·        2002-06-14 — Omaha, Nebraska — $800.000 — 1
·        2002-08-23 — Orange, California — $400.000 — 1
·        2002-09-04 — Los Gatos, California – Jesuits — $7.5 million — 2
·        2002-09-09 — Providence, Rhode Island — $13.5 million — 36
·        2002-09-18 — Boston, Massachusetts — $10 million — 86
·        2002-10-10 — Manchester, New Hampshire — $950.000 — 16
·        2002-11-26 — Manchester, New Hampshire — $5.1 million — 62
·        2003-01-09 — Boston, Massachusetts (Jesuits) — $5.8 million — 15
·        2003-01-29 — Metuchen, New Jersey — $800,000 — 10
·        2003-03-13 — Camden, New Jersey — $880,000 — 23
·        2003-05-08 — Manchester, New Hampshire — $815.000 — 4
·        2003-05-22 — Manchester, New Hampshire — $6.5 million — 61
·        2003-05-22 — Manchester, New Hampshire — $2.1 million — 33
·        2003-06-10 — Louisville, Kentucky — $25.7 million — 243
·        2003-06-30 — San Bernardino, California — $4.2 million — 2
·        2003-07-01 — Chicago, Illinois — $1.9 million — 1
·        2003-07-10 — Chicago, Illinois — $4 million — 4
·        2003-08-14 — Tucson, Arizona — $1.8 million — 5
·        2003-09-09 — Boston, Massachusetts — $84.2 million — 552
·        2003-09-11 — Seattle, Washington — $7.9 million — 15
·        2003-10-02 — Chicago, Illinois — $8 million — 15
·        2003-10-11 — Covington, Kentucky — $5.2 million — 27
·        2003-10-16 — Bridgeport, Connecticut — $21million — 40
·        2003-11-24 — Oakland, California — $1 million — 1
·        2003-12-04 — Covington, Kentucky — $1million — 5
·        2004 — Bridgeport, Connecticut — $40,000 — 2
·        2004-01-23 — Oakland, California — $3 million — 1
·        2004-01-28 — Covington, Kentucky — $2 million — 7
·        2004-04-15 — St. Petersburg, Florida — $1.1 million — 12
·        2004-04-21 — St. Louis, Missouri — $1.7 million — 1
·        2004-05-27 — Altoona-Johnstown, Pennsylvania — $3.7 million — 21
·        2004-07-03 — Toledo, Ohio — $500,000 — 2
·        2004-08-17 — Springfield, Massachusetts — $7.8 million — 46
·        2004-08-20 — Toledo, Ohio — $1.2 million — 23
·        2004-08-26 — St. Louis, Missouri  — $2 million — 18
·        2004-09-22 — Miami, Florida — $3.4 million — 23
·        2004-10-08 — Newark, New Jersey — $1 million — 10
·        2004-10-28 — Davenport, Iowa — $9 million — 37
·        2004-12-02 — Orange, California — $100 million — 91
·        2004-12-17 — Seattle, Washington — $1.8 million — 12
·        2004-12-23 — Oakland, California — $6.3 million — 3
·        2005-02-15 — Paterson, New Jersey — $5 million — 27
·        2005-03-08 — Cincinnati, Ohio — $3.2 million — 120
·        2005-03-24 — Oakland, California — $437,000 — 1
·        2005-03-31 — Fort Worth, Texas — $1.4 million — 1
·        2005-04-07 — Fairbanks, Alaska-Jesuits — $1 million — 1
·        2005-04-09 — Fort Worth, Texas — $2.7 million — 1
·        2005-04-15 — Oakland, California — $1.9 million — 2
·        2005-04-20 — San Francisco, California — $5.8 million — 4
·        2005-04-22 — Santa Rosa, California — $3.3 million — 1
·        2005-05 — Orlando & St. Augustine, Florida — $1.5 million — 3
·        2005-05-09 — Davenport, Iowa — $1.9 million — 1
·        2005-05-19 — Stockton, California — $3 million — 1
·        2005-06-10 — San Francisco, California — $21.2 million — 15
·        2005-06-10 — Seattle, Washington — $1.7 million — 4
·        2005-06-29 — Sacramento, California — $35million — 33
·        2005-06-30 — Boston, Massachusetts — $33.1 million — 257
·        2005-07-01 — Santa Rosa, California — $7.3million — 8
·        2005-07-08 — San Francisco, California — $16.0 million — 12
·        2005-08-05 — Oakland, California — $56 million — 56
·        2005-08-27 — Seattle, Washington – Benedictines — $2.6 million — 7
·        2005-09-02 — San Francisco, California — $4 million — 4
·        2005-10-11 — San Francisco, California — $2.6million — 2
·        2005-11-01 — Hartford, Connecticut — $22million — 43
·        2006-01-09 — Covington, Kentucky — $2.5 million — 19
·        2006-01-09 — Covington, Kentucky — $79 million — 243
·        2006-02-21 — Dubuque, Iowa — $5 million — 20
·        2006-03-13 — Los Angeles, California – Franciscans — $28 million — 25
·        2006-03-16 — Jackson, Mississippi — $5.1 million — 19
·        2006-04-01 — Seattle, Washington — $1 million — 2
·        2006-06-30 — Boston, Massachusetts — $6.3 million — 86
·        2006-08-04 — Anchorage, Alaska and Boston, Massachusetts — $1.4 million — 5
·        2006-09-01 — Milwaukee, Wisconsin — $16.7 million — 10
·        2006-10-27 — Los Angeles, California – Carmelites — $10 million — 7
·        2006-11-30 — Norwich, Connecticut — $1.1 million — 1
·        2006-12-01 — Los Angeles, California — $60 million — 45
·        2006-12-16 — Washington, D.C. — $1.3 million — 16
·        2007-01-05 — Denver, Colorado — $1.5 million — 15
·        2007-03-27 — Dubuque, Iowa — $2.6 million — 9
·        2007-03-29 — Fairbanks, Alaska and Oregon Province of Jesuits — $1.9 million — 4
·        2007-05-10 — Rockford, Illinois — $2.2 million — 2
·        2007-05-16 — Portland, Oregon — $1.3 million — 2
·        2007-05-18 — Rockville Centre, New York — $11.4 million — 2
·        2007-05-29 — Chicago, Illinois — $6.6 million — 15
·        2007-06-30 — Boston, Massachusetts — $2.1 million — 34
·        2007-07-14 — Los Angeles, California — $660 million — 508
·        2007-07-30 — Charleston, South Carolina — $10.3 million — 80
·        2007-08-30 — Charleston, South Carolina — $1.375 million — 11
·        2007-09-07 — San Bernardino, California — $15.1 million — 11
·        2007-09-13 — Santa Rosa, California — $5 million — 10
·        2007-10-05 — Orange, California — $6.6 million — 4
·        2007-10-19 — St. Louis, Missouri – Marianists — $160,000 — 1
·        2007-11-16 — Fairbanks, Alaska – Jesuits — $50 million — 110
·        2008-01-04 — Spokane, Washington – Jesuits — $4.8 million — 16
·        2008-01-18 — Wilmington, Delaware — $450,000 — 1
·        2008-04-10 — Dubuque, Iowa — $4.7 million — 18
·        2008-05-13 — Burlington, Vermont — $784,000 — 1
·        2008-05-14 — Los Angeles, California – Salesians — $19.5 million — 17
·        2008-06-30 — Boston, Massachusetts — $5.4 million — 55
·        2008-07-01 — Denver, Colorado — $5.5 million — 18
·        2008-08-12 — Chicago, Illinois — $12.6 million — 16
·        2008-08-19 — Kansas City-St. Joseph, Missouri — $10 million — 47
·        2008-08-27 — Belleville, Illinois — $5 million — 1
·        2008-08-29 — Providence, Rhode Island — $1.3 million — 4
·        2008-09-11 — Chicago, Illinois — $2.5 million — 1
·        2008-09-18 — Chicago, Illinois — $1.7 million — 1
·        2008-10-30 — Pueblo, Colorado – Marianists — $4.2 million — 23
·        2008-11 — Seattle, Washington - Christian Bros — $7.2 million — 11
·        2008-12-03 — Springfield, Massachusetts — $4.5 million — 59
·        2008-12-17 — Burlington, Vermont — $784,000 — 1
·        2009-01-29 — Seattle, Washington - Christian Brothers — $7million — 13
·        2009-02-28 — Memphis, Tennessee — $2 million — 1
·        2009-04-08 — Wilmington, Delaware — $1.5 million — 1
·        2009-06-03 — Monterey, California — $1.2 million — 1
·        2009-06-30 — Boston, Massachusetts — $3.6 million — 27
·        2009-07-21 — Chicago, Illinois — $3.9 million — 6
·        2009-10-09 — Burlington, Vermont — $784,000 — 1
·        2009-10-22 — Belleville, Illinois — $1.2 million — 1
·        2009-10-28 — Savannah, Georgia — $4.2 million — 1
·        2009-11-05 — Portland, Maine — $200,000 — 1
·        2010-05-03 — Indianapolis, Indiana — $199,000 — 1
·        2010-05-13 — Burlington, Vermont — $17.6 million — 26
·        2010-06-10 — Charlotte, North Carolina and Capuchins — $1.2 million —
·        2010-08-11 — Lansing, Michigan — $250,000 — 1

Saturday, February 1, 2020

Urban Institute: Thirty percent of student debtors are enrolled in Income-driven repayment plans

The federal student-loan program is in crisis, but it is hard to figure just how big the problem is.

The Department of Education annually reports the percentage of student borrowers who default three years after beginning repayment. That figure--about 10 percent in recent years--is concerning but not alarming.

Non-governmental studies (Pew Foundation and Brookings Institution) have found that the 5-year default rate for recent cohorts is double the 3-year rate: about 25 percent.  In other words, 1 out 4 student-loan debtors default on their loans within five years of beginning repayment.  Now that is alarming.

But the situation is a lot more dire than that.  A recent report from the Urban Institute (authored by Kristin Blagg, Laurie Goodman, and Kelia Washington) noted that 8 million student-loan debtors are in income-driven repayment plans (IDRs).  According to this report, that amounts to about 30 percent of all college borrowers.

That's really scary because almost no one among those IDR participants is paying down the principal on his or her debt.  Instead, just about all of these 8 million people are making very small monthly payments based on their income--not the amount that they borrowed.

It is always dicey to compare one student-loan analysis to another because we are always measuring apples and oranges. Some of the people counted as 5-year defaulters in one study may be the same people identified as IDR payers in another. (And the Brookings and Pew studies examined cohorts, not the entire student-debtor population.)

Nevertheless, it is clear that when the 5-year defaulters and the IDR participants are considered together, about half of all student-loan borrowers are not paying off their loans.  In my opinion, that's a meltdown.

You may love Senator Bernie Sanders and Senator Elizabeth Warren or you may hate them, but both deserve credit for putting a serious proposal on the table to address the student-loan crisis.  Forgiving all student debt (Bernie's plan) or $50,000 of a borrower's debt (Elizabeth Warren's plan) are reasonable ideas.

One thing seems clear (at least to me): The student-loan program is out of control and it is kicking millions of people out of the middle class. The program hinders overburdened debtors from buying homes, having children, getting married, and saving for retirement.

And who benefits? Our corpulent, incompetently run colleges and universities whose leaders say the universities need more federal money.

Greedy colleges: "Feed me, Seymour!"