Thursday, May 14, 2020

One-day bankruptcies for corporations and decade-long bankruptcy proceedings for student debtors: Is that fair?

Jonathan Henes, a corporate attorney, wrote an op-ed essay for the Wall Stree Journal a few days ago calling for Congress to codify one-day bankruptcies for financially troubled corporations. "The one-day bankruptcy would streamline the bankruptcy practice," Henes argued and would reduce business disruptions and legal expenses.

Henes's appeal in the Wall Stree Journal is not the only suggestion for streamlining the corporate bankruptcies that are sure to come due to the coronavirus pandemic.  A group of legal scholars wrote a joint letter recently asking Congress to appoint more bankruptcy judges to deal with corporate bankruptcies that are looming on the national horizon.

Henes's essay and the legal scholars' letter both make reasonable suggestions on behalf of America's big businesses. If corporate America backs these proposals, they have a good chance of being enacted into law.

But is anyone thinking about relief for America's distressed student-loan debtors? After all, according to the Department of Education's own report, 8.1 million college borrowers are in long-term repayment plans that are designed never to be paid off and which can last for as long as 25 years. How about some bankruptcy relief for these people?

It would be cruelly ironic if Congress codifies one-day bankruptcies for corporations while the Bankruptcy Code makes it nearly impossible for insolvent student-loan borrowers to discharge their college loans in bankruptcy.

And even student debtors who prevail in the bankruptcy courts often find themselves embroiled in appellate proceedings that can last for years.  Michael Hedlund, for example, filed for bankruptcy in 2003 and sought to discharge student loans he had taken out to go to Willamette Law School. 

Ultimately, a bankruptcy judge granted Hedlund a partial discharge, but the decision was reversed by a federal district court. Hedlund appealed to the Ninth Circuit Court of Appeals, which ultimately upheld his partial discharge. But the Ninth Circuit did not issue its opinion in Hedlund's case until 2013—ten years after he filed for bankruptcy!

One-day bankruptcies for big corporations and decade-long bankruptcy proceedings for beaten-down student debtors? That doesn't work for me.


Hedlund v.Educational Resources Institute, 718 F.3d 848 (9th Cir. 2013).

Henes, J. S. Congress Should Codify the One-Day Bankruptcy. Wall Street Journal, May11, 2020. 

Will Congress help corporations and ignore beaten-down student debtors?


  1. How should the bankruptcy laws be written for the IDR situation?

    For example, if I go before the courts and say that i have a $1,000 minimum payment on my credit cards and a $3,000 a month income, I will probably be granted bankruptcy.

    If I go before the courts and say that I will owe $100 a month for the next 20 years and then I will have a $200,000 tax lien, am I really bankrupt?

    I am not trying to dodge the problem. I want to see a lot more student loan bankruptcies.

    But I honestly do not know how to write the law.

  2. Bob,I believe the solution is to remove the "undue hardship" provision in the Bankruptcy Code, allowing student debtors to discharge their college loans like any other non-secured debt. The only question for a bankruptcy court to consider should be: Can the debtor pay back the student loans. Also, the judge should check to see that the debtor isn't committing fraud. But the bankruptcy judges already have the power to deal with fraudulent filings. That is my solution, and I have held this view for a long, long time.

    1. Thanks for responding.

      Are you saying that if the income based repayment will not pay off the loan over time, that the borrower should be able to declare bankruptcy and cancel the loan?

      Let's go back to my example. My hypothetical income is $3K a month. I have only one debt, the student loan. My IDR payment is $100 a month.

      Now I can make that $100 payment forever. But I will never pay off the loan.

      How does a bankruptcy judge look at this?