Friday, December 18, 2020

Mosley v. Educational Credit Management Corporation: "It's not personal. It's just business."

The U.S. Department of Education and Educational Credit Management Corporation (ECMC), DOE's ruthless sidekick, don't want anyone to get bankruptcy relief.  This has been DOE's policy for many years.

Let's take a look at Mosley v. Educational  Credit Management Corporation, decided by the Eleventh Circuit back in 2007. As we will see, Mosley was clearly entitled to discharge his student loans in bankruptcy under the undue hardship standard, but ECMC fought him all the way into the Eleventh Circuit Court of Appeals.

Keldric Mosley attended Alcorn State University, an HBCU, from 1989 to 1994, but he never got a degree. While a student, he was enrolled in Army ROTC, and he injured his back and hip when he fell from a tank during summer ROTC exercises.

Mosley left Alcorn State in 1994 to help his mother, whose health was deteriorating. He lived with his mother from 1994 until 1999. He held numerous jobs during that time but was unable to keep any of them due to depression, heavy drinking, and physical limitations due to his ROTC injury. (p. 1323)

In 2000, Mosley's mother committed him to a state-supported mental health facility, where he was diagnosed with depression and anxiety. He sought treatment for his physical and mental disabilities from the Department of Veterans' Affairs, which placed him on prescription medications. These medications left him groggy. The combination of medicines and his physical disabilities made it difficult for Mosley to find stable employment. (p. 1323)

As noted by the Eleventh Circuit, Mosley was homeless from 2000 until his adversary proceeding in bankruptcy court, and he lived off of food stamps and small disability checks. He had no car and frequently slept at his aunt's house. (p. 1323)

Mosley represented himself in his adversary proceeding and sought to get evidence of his medical disabilities before the bankruptcy court. ECMC showed up to oppose bankruptcy relief and objected to the admission of some of Mosley's medical evidence. 

Although Judge Mullins reluctantly declined to accept some of his medical evidence, he discharged Mosely's student loans without that evidence. Judge Mullins reasoned that Mosley's testimony was sufficient to show that "he was in a vicious cycle of illness and homelessness that prevented him from working" and that repaying his student loans would constitute an undue hardship. (p. 1324)

After a trial, Judge Mullins discharged Mosley's student loans in bankruptcy.  ECMC appealed, but U.S. District Court Judge Robert Vining affirmed Judge Mullins' decision.

ECMC then appealed to the Eleventh Circuit Court of Appeals.  It argued that Judge Mullins erred in admitting Mosley's own testimony about his health. ECMC also argued that Mosley's evidence did not support Judge Mullins' conclusion that Mosley's financial situation was unlikely to improve or his ruling that Mosely handled his student loans in good faith.

But the Eleventh Circuit rejected all of ECMC's arguments and affirmed Judge Mullins' decision to discharge Mosley's student loans.  The appellate court ruled that Judge Mullins properly considered Mosley's testimony about his medical health. The court cited the Sixth Circuit's decision in Barrett v. ECMC, in which that court ruled that requiring an indigent debtor to obtain expensive expert testimony or documentation "imposes an unnecessary and undue burden on the debtor in establishing his burden of proof." (p. 1325)

Regarding the good faith requirement, ECMC argued that Mosley had not managed his student loans in good faith because he had not made a payment on his loans since 1996 and had not enrolled in an income-based repayment plan. 

But the Eleventh Circuit rejected those arguments. 

 [F]ailure to make a payment, standing alone, does not establish a lack of good faith. Good faith is measured by the debtor's efforts to obtain employment, maximize income, and minimize expenses; his default should result, not from his choices, but from factors beyond his reasonable control. (p. 1327)

Nor is a debtor always obligated to sign up for an income-based repayment plan to establish good faith:

While a debtor's effort to negotiate a repayment plan certainly demonstrates good faith, courts have rejected a per se rule that a debtor cannot show good faith where he or she has not enrolled in the Income Contingent Repayment Program. (p. 1327).

In short, Keldric Mosley--who clearly met the undue hardship standard for discharging his student loans in bankruptcy--had to fight for that remedy all the way to the Eleventh Circuit Court of Appeals. Although Mosley had a record of homelessness and chronic health problems, ECMC refused to allow him bankruptcy relief until three levels of federal judges ruled in his favor. 

It was not personal with ECMC. It was just business.

Congress needs to remove the "undue hardship" language from the Bankruptcy Code, and perhaps someday it will. 

But until that day comes, the U.S. Department of Education and ECMC could do a lot to ease the stress on overburdened student-loan debtors if they would merely allow people like Keldric Mosely to discharge their student loans in bankruptcy without having to battle their way into the federal appellate courts.  

References

Mosely v. Educational Credit Management Corporation, 494 F.3d 1320 (1lth Cir. 2007).

"It's not personal. It's just business."


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