Showing posts with label Brunner test. Show all posts
Showing posts with label Brunner test. Show all posts

Tuesday, July 10, 2018

Alexandra Acosta-Coniff v. ECMC: A single mother wins bankruptcy relief from student loans but sees victory snatched away on appeal

In 2013, Alexandra Acosta-Conniff, an Alabama school teacher and single mother of two children, filed an adversary proceeding in an Alabama bankruptcy court, hoping to discharge student loans that had grown to $112,000.  She did not have an attorney, so she represented herself in court.

At her trial,  Judge William Sawyer applied the three-part Brunner test to determine whether Acosta-Conniff met the "undue hardship" standard for having her student loans discharged in bankruptcy.

First, Judge Sawyer ruled, Conniff could not pay back her student loans and maintain a minimal standard of living for herself and her two children. Thus she met the first part of the Brunner test.

Second, Conniff's economic circumstances were not likely to change in the foreseeable future. Conniff was a rural school teacher, Judge Sawyer pointed out, who could not expect a significant rise in income. Although she had obtained a doctorate in education, that doctorate had not paid off financially.

Third, Judge Sawyer ruled, Conniff had handled her student loans in good faith. She had made monthly payments over several years and she had obtained deferments from making payments--deferments she was eligible to receive. In Judge Sawyer's view, Conniff met the good-faith requirement of the Brunner test.

In short, Judge Sawyer determined, Conniff qualified for bankruptcy relief under the Bankruptcy Code's "undue hardship" standard as interpreted by Brunner.  Accordingly, the judge discharged all of Conniff's student-loan debt.

ECMC appealed, and Judge Keith Watkins reversed. Fortunately, retired bankruptcy judge Eugene Wedoff volunteered to represent Conniff without charge, and Wedoff and his associates took her case to the Eleventh Circuit Court of Appeals.

In 2017, four years after Conniff filed her adversary proceeding, the Eleventh Circuit reversed the trial court,  directing Judge Watkins to review Judge Sawyer's ruling under the "clear error" standard. In other words, unless Judge Sawyer had committed clear error in deciding for Conniff, Judge Watkins was bound to uphold Sawyer's decision. The Eleventh Circuit remanded the case back to Judge Watkins to straighten things out.

In January 2018, Judge Watkins issued his second opinion in Conniff's case, and he concluded that Judge Sawyer had indeed committed clear error when he ruled in Conniff's favor. Judge Watkins' opinion is a bit convoluted, but basically he said Judge Sawyer made a mistake in failing to determine whether Conniff was eligible for an income-contingent repayment plan (ICRP).

In Judge Watkins' opinion, if Conniff can make even small loan payments under an ICRP and still maintain a minimal standard of living, she is not eligible for bankruptcy relief.

So what does this mean?

It means Alexandra Acosta-Conniff must return to bankruptcy court a second time--more than three years after her first trial. Apparently, Judge Sawyer will not schedule a second trial; instead, he has asked Conniff and ECMC to submit proposed findings of facts. At some point, Judge Sawyer will issue his second opinion on Conniff's case.

Conniff owed $112,000 in 2015, when she was 44 years old. Her debt has grown over the last three years due to accrued interest, and Conniff is older. She is now 47 years old.

What does the future hold for Alexandra Acosta-Conniff? More litigation.

If Conniff wins her second trial, ECMC, ruthless and well financed, will undoubtedly appeal again; and the case will ultimately go back to the Eleventh Circuit a second time. Conniff now has an able lawyer, so if she loses before Judge Sawyer, she will likely appeal. So--win or lose--Conniff is in for at least two more years of stressful litigation. When this is all over, Conniff will likely be 50 years old.

Here's my take on Conniff's sad odyssey through the federal courts. First, Judge Watkins' most recent decision is deeply flawed. In Watkins' view, a student-loan debtor who can make even small loan payments under an ICRP while maintaining a minimal standard of living cannot discharge her student loans in bankruptcy: period.

But if that were true, then no student-loan debtor is eligible for bankruptcy relief. In several cases, ECMC or the U.S. Department of Education has argued that a student-loan debtor  living at or below the poverty line should be denied bankruptcy relief  and required to enter into an ICRP even though the debtor would be required to pay zero. In fact, ECMC and DOE have been arguing for years that basically every destitute student-loan debtor should be put in an ICRP and denied bankruptcy relief.

Do want some examples? Roth v. ECMC (9th Cir. BAP 2013), Myhre v. U.S. Department of Education (Bankr. W.D. Wis. 2013), Abney v. U.S. Department of Education (Bankr. W.D. Mo. 2015), Smith v. U.S. Department of Education (Bankr. D. Mass. 2018).

The Roth case illustrates the insanity of this point of view. In that case, ECMC fought bankruptcy relief for Janet Roth, an elderly retiree with chronic health problems who was living on less than $800 a month in Social Security benefits. Put her in an ICRP, ECMC insisted, even though she would be required to pay nothing due to her impoverished circumstances.

The Ninth Circuit's Bankruptcy Appellate Panel pointed out the absurdity of ECMC's position. It would be pointless to put Roth in an ICRP, the court ruled. "[T]he law does not require a party to engage in futile acts."

Forcing Alexandra Acosta-Conniff into an ICRP, which Judge Watkins obviously desires, is a futile act. She will never pay off her student loans, even if she makes small monthly income-based payments for the next 25 years.

Acosta-Conniff is a big, big case. If Judge Watkins' hardhearted view prevails, then bankruptcy relief for student-loan debtors is foreclosed in the Eleventh Circuit. If the compassionate and common-sense spirit of Judge Sawyer's original 2013 opinion is ultimately upheld, then distressed student-loan debtors like Alexandra Costa-Conniff will get the fresh start that the bankruptcy courts were intended to provide.

The Eleventh Circuit Court of Appeals will ultimately have to look at Alexandra Acosta-Conniff's case a second time.  But her next trip to the Eleventh Circuit is likely at least two years away.

The Honorable Judge Keith Watkins


References

Acosta-Conniff v. ECMC, 536 B.R. 326 (Bankr. M.D. Ala. 2015).

ECMC v. Acosta-Conniff, 550 B.R. 557 (M.D. Ala. 2016).

ECMC v. Acosta-Conniff, 686 Fed. Appx. 647 (11th Cir. 2017).

ECMC v. Acosta-Conniff, 583 B.R. 275 (M.D. Ala. 2018).


Monday, June 25, 2018

Should courts look for bad faith when distressed student-loan debtors ask for bankruptcy relief? Further reflections on Smith v. Department of Education

Distressed debtors cannot discharge student loans unless they can show their loans constitute an "undue hardship" to themselves and their dependents. Congress did not define undue hardship in the Bankruptcy Code, so it was left to the courts to define the term.

Most courts have adopted the Brunner test for determining when a student loan is an undue hardship that can be discharged in bankruptcy. That test has three parts:

1) Can the debtor pay back the loan while maintaining a minimal standard of living?
2) Will the debtor's financial circumstances change during the lifetime of the loan?
3) Did the debtor handle his or her loans in good faith?

In Smith v. Department of Education, decided a few months ago, Judge Frank Bailey, a Massachusetts bankruptcy judge, explicitly criticized the Brunner test's  "good faith" component:
[A]ny test that allows for the court to determine a student debtor's good or bad faith while living at a subsistence level, virtually strait-jacketed by circumstances, displaces the focus from where the statute would have it: the hardship. It also imposes on courts the virtually impossible task of evaluating good or bath faith in debtors whose range of options is exceedingly limited and includes no realistic hope of repaying their loans to any appreciable extent. . .(p. 566)
 Judge Bailey argued for a simpler and fairer standard for determining when a student loan can be discharged in bankruptcy: "If a debtor has suffered a personal, medical, or financial loss and cannot hope to pay now or in the reasonably reliable future," the judge reasoned, "that should be enough" (p. 565) (italics supplied).

Eliminating the good faith component of the Brunner test would have a huge impact on student-loan bankruptcy jurisprudence because the Department of Education and its thug debt collectors almost always argue that a debtor filed for bankruptcy in bad faith. And this is ironic because it is the Department of Education, not student-loan debtors, that repeatedly demonstrates bad faith in the bankruptcy courts.

Let's take the Smith case as an example:

1) First of all, the U.S. Department of Education has publicly proclaimed it will not oppose bankruptcy relief for student debtors who are disabled. Mr. Smith is disabled; and Smith and his mother subsist entirely on Smith's monthly disability check, food stamps, and his mother's tiny Social Security income. Thus, DOE was opposing Mr. Smith's plea for bankruptcy relief in direct contradiction to DOE's own policy. In my opinion, that shows DOE's bad faith.

2) In a 2015 letter, a Department of Education official said DOE would not oppose bankruptcy relief when it made no economic sense to do so. Smith's adversary proceeding stretched out over five days, taking up Judge Bailey's time; and both Smith and DOE had lawyers. (In fact, DOE had two lawyers.) Smith only borrowed $29,000; and the litigation expenses almost certainly exceeded that amount. In my view, DOE's decision to chase Smith into bankruptcy court is additional evidence of bad faith.

3) Finally, DOE insisted Smith should be put in a long-term income-based repayment plan, even though it admitted Smith's income was so low that his monthly loan payments would be zero. So what was the point of fighting Smith in bankruptcy court? Again, this is more evidence of DOE's bad faith.

In fact, the Department of Education and the student loan guaranty agencies (ECMC in particular) almost always argue that a distressed student-loan debtor filed for bankruptcy in bad faith. And this is true even when the debtor is hovering on the brink of homelessness.

After all, in the Myhre case, DOE opposed student-loan debt relief for a quadriplegic whose expenses exceeded his income.  In the Abney case, DOE fought Kevin Abney, who was so poor he did not own a car and traveled to work on a bicycle. And in the Stevenson case, ECMC objected when Janice Stevenson, a woman with a record of homelessness and who lived in subsidized housing, tried to discharge almost $100,00 in student loans.

So Judge Bailey is right. The federal courts should stop asking whether down-and-out student-loan debtors handled their student loans in good faith. The only important questions are these: Can the debtor pay back his or her student loans? Will the debtor ever be able to pay back those loans?

And if the courts continue to insist on looking for bad faith, they should look for it by the Department of Education, ECMC, and the entire gang of government-subsidized debt collectors.



References

Jillian Berman. Why Obama is forgiving the student loans of almost 400,000 peopleMarketwatch.com, April 13, 2016.


Myhre v. U.S. Department of Education, 503 B.R. 698 (Bakr. W.D. Wis. 2013).

Michael Stratford. Feds May Forgive Loans of Up to 387,000 BorrowersInside Higher Ed, April 13, 2016. 

Smith v. U.S. Department of Education (In Re Smith), 582 B.R. 556 (Bankr. D. Mass 2018).

Stevenson v. ECMC, Case No. 08-14084-JNF, Adv. P. No. 08-1245 (Bankr. D. Mass. August 2, 2011).

Some physical or mental impairments can qualify you for a total r permanent disability discharge on your federal student loans and/or TEACH grant service obligation. U.S. Department of Education web site (undated).

Tuesday, December 12, 2017

Coplin v. U.S. Dep't of Education: Bankruptcy court orders single mother of 4 disabled children to repay $222,000 in student loans

Heather Coplin graduated from University of Pacific's McGeorge law school in 2009 and gave birth to triplets that same year. The infants were born prematurely and all three suffer from profound disabilities. At age 8, one triplet is incontinent and requires an electric wheelchair for mobility. The other two triplets have muscular issues that impair their mobility. Two triplets have required shunts to drain spinal fluid.

Coplin also has a 15-year-old child who suffers from autism. He is six feet tall, weighs 340 pounds and engages in "anxiety-induced acting-out behavior." Coplin has called the police on several occasions to deal with her son's aggressiveness.

Coplin herself is bipolar and has made several suicide attempts.

Although Coplin graduated law school in 2009, she was unable to pass the state bar exam until 2012. She practiced law for a time and even established her own firm. She found, however, that family issues prevented her from working as an attorney. At time of trial, Coplin was a night-shift waitress at the Muckleshoot Casino

Coplin filed an adversary proceeding in bankruptcy court to discharge almost half a million dollars in student-loan debt, some of it accruing interest at the rate of 10 percent. Navient, one of her creditors, agreed to discharge part of the debt, but three creditors opposed a discharge: ECMC, the U.S. Department of Education and University of the Pacific.

In a decision entered a few days ago, Judge Mary Jo Heston granted Coplin a partial discharge. Utilizing the three-pronged  Brunner test, Judge Heston concluded Coplin only met two prongs.

First, Coplin met the first prong, which required her to show she could not pay back her student loans and maintain a minimal standard of living.  She also met a second prong, requiring her to show she had handled her student loans in good faith.

Nevertheless, Judge Heston did not grant Coplin a full discharge. Coplin had about $1850 in discretionary monthly income, the judge pointed out.  She could put that amount toward paying off her student loans. Judge Heston ruled that Coplin could pay back $222,000 over a ten-year period; and thus she only granted Coplin a partial discharge.

It should be pointed out that the only reason Coplin had any discretionary income was that she was living in her fiancee's home rent free. In addition, I don't think the bankruptcy judge accurately estimated Coplin's ongoing medical expenses. Coplin said she visited doctors 6 or 7 times a week due to her children's medical issues.

These are my reflections on the Coplin decision:

First, I was struck by Coplin's strong work ethic. As Judge Heston noted, Coplin had worked continuously at a variety of jobs since graduating from law school. She practiced law, sold real estate, worked as a delivery driver, and finally wound up working the night shift as a casino waitress.  No one can say she didn't do her best to feed her family.

Second, I was shocked by the ruthlessness of Coplin's creditors. The creditors--including the U.S. Department of Education--argued Coplin should be denied a discharge because she had not lived frugally.  They pointed to the fact that she occasionally dined at fast food restaurants, had cable television, and had taken a modest vacation.

Is Betsy DeVos' Department of Education saying that a casino waitress with four disabled children is living extravagantly because she occasionally eats at McDonald's? Yes, it is.

Finally, I was astonished by the arrogance of University of the Pacific, where Coplin went to law school. One would think the university would be embarrassed by the fact that one of its law graduates racked up half a million dollars in student-loan debt (including accrued interest), took three years to pass the bar exam and was working as a waitress 8 years after obtaining her law degree. But no--UP wants its money--at 10 percent interest.

In sum, I found the Coplin decision disheartening. If a waitress with four disabled children can't obtain a complete discharge of her student loans in a bankruptcy court then it is difficult to see how any student-loan debtor is entitled to bankruptcy relief. God help us.

Muckleshoot Casino, where attorney Heather Coplin works as a waitress

References

Coplin v. U.S. Department of Education,  Case No. 13-46108, Adversary No. 16-04122, 2017 WL 6061580 (Bankr. W.D. Wash. December 6, 2017).

Saturday, July 15, 2017

A single mother of three children gets a bankruptcy discharge of her student loans: Price v. Betsy DeVos and U.S. Department of Education

Kristin Price, a single mother of three young children, won an important victory in a Pennsylvania bankruptcy court last month. On June 23, Judge Eric Frank issued an opinion discharging all of Ms. Price's federal student loans--approximately $26,000. This is another win for the good guys.

Price v. DeVos and the U.S. Department of Education: A single mom files for bankruptcy

At the time of trial, Ms. Price was 29 years old and had three children ages 3, 5 and 11. Although she was still married, she was separated from her husband and anticipated a divorce.

Price obtained a Bachelor of Science degree in Radiology Science from Thomas Jefferson University in 2011, financing her studies with federal and private loans.  At the time of trial, she worked part-time as a vascular sonographer but was unable to find full-time work in her field. She testified she could obtain a second part-time job working outside her field but the additional child care costs did not justify that option.

Price received informal child support from her estranged husband, but her reasonable expenses still exceeded her income. She testified that she lived with her mother in return for paying her mother's mortgage payment--about $1400 a month.

At the time Price filed her adversary complaint in the bankruptcy court, she owed nearly $26,000 in federal loans and $30,000 to Chase Bank.  Price settled with Chase prior to trial. Thus the only issue before Judge Frank was whether Price was entitled to have her federal loans discharged.

Judge Frank applied the three-part Brunner test to rule for Ms. Price

Judge Frank applied the three-part Brunner test to decide Price's case. The Department of Education conceded that Price passed the first prong of the Brunner test; she could not pay back her federal loans and maintain a minimal standard of living.

The Department also conceded that Price passed Brunner's third prong. It acknowledged that she had handled her student loans in good faith.

But DOE argued that Price could not pass Brunner's second prong. According to DOE, Price could not show additional circumstances making it likely that her financial situation would not improve "for a significant portion of the repayment period of the student loans." Basically, DOE maintained that Price was young and healthy and was qualified for a good job in the medical field. Eventually, DOE pointed out, Price's children would grow up and leave the home, which would enable Price to get a better job and repay her student loans.

And here is where Judge Frank's opinion gets interesting. Price argued that her future financial prospects should be considered for no longer than the remaining period of her 10-year loan repayment obligation, which ended in 2024. DOE argued that Judge Frank should consider Price's financial prospects for a much longer time--the 20- or 25-year period of an income-based repayment plan.

Fortunately for Price, Judge Frank did not buy DOE's argument. The judge ruled that Price had rejected a long-term income-based repayment plan in good faith; and thus he would consider her financial prospects based on the terms of her ten-year repayment obligation and not the 20 or 25 years DOE requested.

Judge Frank said he was obligated to consider Price's future financial prospects based on "specific articulable facts, not unfounded optimism." If he were required to consider Price's financial situation over a 20- or 25-year term, Judge Frank reasoned, his determination "[would] be nothing more than mere guesswork, without any reasonable degree of certitude."

Moreover, Judge Frank pointed out, DOE's own expert testified that DOE's 20-year REPAYE program was ill-suited for Price and that he would not recommend it for her. Judge Price also noted that a REPAYE plan would require Price to consolidate her debt, which would cause accrued interest to be capitalized into a larger loan balance--meaning she would be "paying interest on interest."

If Price's meager income did not improve significantly in later years, Judge Frank explained, her loan would eventually "reach a kind of 'escape velocity,'" meaning that her monthly payments would not be enough to cover accruing interest and her loan balance would grow "for the next several decades."

Based on this analysis, Judge Frank then considered what Price's financial prospects would likely be over the next five years--about 70 percent of the remaining repayment period. The judge concluded Price would probably be unable to pay back her loans over that period.

In short, after applying the second prong of the Brunner test to Price's financial outlook, the judge discharged all of Price's federal loans.

Without question, the heart of Judge Price's ruling was based on his conclusion that Price had rejected a long-term payment period in good faith. And of course, his decision was made a lot easier due to the fact that DOE's own expert admitted that a long-term repayment plan was not appropriate for her.

What does the Price decision mean for other overburdened student-loan debtors?

 Judge Frank's Price decision is significant for at least three reasons:

 First, this is the most recent in a string of bankruptcy court decisions that have discharged student-loan debt owed by single mothers with dependent children. Price follows in the wake of Lamento, Acosta-Conniff (on appeal), Fern, and McDowell--all decisions involving single mothers with children who won discharges or partial discharges of their student loans.

Second, this is the latest in a series of very well-reasoned bankruptcy court decisions in which bankruptcy judges have worked hard to grant relief to overburdened debtors within the harsh constraints of the Brunner test. Judge Frank's decision was 25 pages long; Judge Berger's decision in the Johnson case out of Kansas was extensively researched. The Abney decision, the Fern decision, and several more have displayed remarkable intellectual agility and commendable commitment to the bankruptcy courts' core purpose, which is to grant overburdened debtors a fresh start in life.

Third, Judge Frank ruled that when a court applies the second prong of the Brunner test to determine whether  a debtor's financial prospects will improve in the future, the appropriate time period for consideration is the original term of the loan (generally 10 years) rather than the extended term of a hypothetical 20-year or 25-year income-based repayment plan.

Admittedly, Judge Frank's conclusion on this last point is a little fuzzy. Price had refused to sign up for a long-term, income-based repayment plan, and Judge Frank ruled that Price's decision to reject such a plan had been made in good faith. Judge Frank might have ruled differently if Price had signed up for a 20-year REPAYE plan before filing for bankruptcy.

Indeed, the judge wrote that the "outcome may well be different in other cases in which the extended loan repayment programs present a more attractive option, or for other appropriate reasons." And the judge also noted that DOE did not dispute the fact that Price's decision to reject a long-term repayment plan had been made in good faith.

In the final analysis, all we can say for sure about the Price decision is this: A healthy 29-year old mother of three children with good future job prospects won a bankruptcy discharge of her student loans based primarily on the fact that her judge did not think Price would be in a position to repay her loans over the next five years.

Personally, I would have liked the Price decision better if Judge Frank had said that a student-loan debtor's financial prospects should always be limited to the term of the original student loan--generally no more than 10 years. That's not what the judge ruled. Nevertheless, it is a good decision for student-loan debtors.

References



Acosta-Conniff v. ECMC [Educational Credit Management Corporation], 536 B.R. 326 (Bankr. M.D. Ala. 2015), reversed550 B.R. 557 (M.D. Ala. 2016), reversed and remanded, No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017).
Richard Fossey & Robert C. Cloud. Tidings of Comfort and Joy: In an Astonishingly Compassionate Decision, a a Bankruptcy Judge Discharge the Student Loans of an Alabama School Teacher Who Acted as Her Own Attorney. Teachers College Record, July 20, 2015. ID Number: 18040.

In re Lamento, 520 B.R. 667 (Bkrtcy. N.D. Ohio 2014).

Price v. U.S. Department of Education, ky. No. 15-17645 ELF, Adv. No. 16-0011, 2017 Bankr. LEXIS 1748 (Bankr. E.D. Pa. 2017).


McDowell v. Educational Credit Management Corporation, 549 B.R. 744, 774 (Bankr. D. Idaho 2016).






Thursday, May 11, 2017

ECMC n v. Acosta-Conniff: Just because you made some bad decisions doesn't disqualify you from discharging your student loans in bankruptcy

Alexandra Acosta-Conniff (Conniff), a single mother of two and an Alabama school teacher, took out student loans to further her education; and she eventually obtained a Ph.D. degree from Auburn University.  She made some payments on her loans, but she put them in deferment for several years due to her low income and her family situation.

Interest accrued on the loans while they were in deferment, and by the time Conniff filed for bankruptcy, her loan balance had grown to $112,000.  In 2013, Conniff filed an adversary action against Educational Credit Management Corporation, seeking to discharge her student loans in bankruptcy.

At the trial on her adversary complaint, Conniff (who argued her case without a lawyer), presented evidence that her expenses slightly exceeded her income and that she was only able to make ends meet by getting financial aid from her parents.
ECMC opposed bankruptcy relief, arguing Conniff should be put into an income-driven repayment plan. ECMC also maintained that Conniff had discretionary income she could devote to making loan payments because she made voluntary payments of $220 a month to her retirement plan.

Judge William Sawyer, an Alabama bankruptcy judge, applied the three-part Brunner test to Conniff's circumstances and concluded that she passed all three parts. First, she was unable to pay off her loans and maintain a minimal standard of living for herself and her children. Second, additional circumstances existed showing that it was unlikely that her financial circumstances would improve during the loan-repayment period. Finally, Judge Sawyer was convinced that Conniff had handled her student loans in good faith.

In deciding Conniff's case, Sawyer, wrote that he was familiar with teachers' pay levels in Alabama, and he considered it unlikely that Conniff's pay as a teacher would increase significantly in the years to come. The judge estimated that Conniff's working life would extend no more than 15 years and that she would be unable to repay her student loans in that time period. Thus, Judge Sawyer discharged Conniff's loans in their entirety.

ECMC appealed to a U.S. District Court, arguing that Judge Sawyer had misapplied the Brunner test. Judge W. Keith Watkins, who heard the appeal, sided with ECMC and specifically found that Conniff failed Brunner's second prong because she had not demonstrated additional circumstances showing that it was unlikely she could repay her student loans in the future.

Essentially, Judge Watkins expressed disapproval of Conniff's decision to obtain a Ph.D. "[Judge Watkins] opined that Conniff has only herself to blame for incurring student debt in the pursuit of multiple degrees that she should have known would not lead to an increase in income sufficient to cover the debt."

Adopting a censorious tone, Judge Watkins said this:
Although [Conniff] is not satisfied with the pay the advanced degrees ultimately have yielded, Conniff chose to earn four degrees, funded primarily by student loans, in her preferred career path of education with a general understanding of the benefits she wold obtain from the degrees versus the costs. She admits specifically that she decided to obtain another student loan to earn her pinnacle Ph.D. in special education and agreed to repay it, knowing how the cost of the Ph.D. compared with the increase in pay it would provide. Conniff finds herself in circumstance largely of her own informed decision-making, which although not dispositive is a consideration.
Conniff, who by now had obtained excellent legal counsel in the person of retired bankruptcy judge Eugene Wedoff, appealed the district court's decision to the Eleventh Circuit Court of Appeals. There, she was more fortunate.  The Eleventh Circuit panel reversed Judge Watkin's opinion and remanded Conniff's case for further consideration.

The Eleventh Circuit specifically disapproved of Judge Watkin's conclusion that Conniff failed the second prong of the Brunner test because she "ha[d] only herself to blame" for her student-loan predicament. In the Eleventh Circuit panel's view, this was the wrong way to interpret Brunner's second prong. Thus, the Eleventh Circuit instructed:

[T]he second prong [of Brunner] is a forward-looking test that focuses on whether a debtor has shown her inability to repay the loan during a significant portion of the repayment period. It does not look backward to assess blame for the student debtor's financial circumstances. Thus, even if the court concludes that a debtor has acted recklessly or foolishly in accumulating her student debt, that does not play into an analysis under the second prong. Nor should it be considered on remand in analysis of that prong. [emphasis supplied] 
The Eleventh Circuit decision (which was not published) is not an outright win for Conniff. She must return to the district court to enable Judge Watkins to reconsider her situation under the Brunner test in accordance with the Eleventh Circuit's directive. But it is a good decision overall, not only for Conniff, but for many other student-loan debtors in bankruptcy.

Let's face it. Millions of distressed student debtors are indebted up to their eyeballs by student loans at least partly because they made some questionable decisions. Perhaps they obtained their degrees from expensive for-profit colleges instead of enrolling in a more reasonably priced public institution. Maybe they chose professions that will not lead to high-paying jobs. Perhaps they changed majors midway through their studies and incurred additional costs.

But the Eleventh Circuit of Appeals has ruled that judges should not examine a debtor's past when determining future ability to repay student loans. The second prong of the Brunner test "is a forward-looking test" and "does not look backward to assess blame." 

Thus, although the Eleventh Circuit's decision in Acosta-Conniff v. ECMC did not rule decisively in favor of cancelling Conniff's debt, she can take comfort from the fact that the lower court will consider her circumstances without blaming her for going to graduate school.




 References

Acosta-Conniff v. ECMC [Educational Credit Management Corporation], 536 B.R. 326 (Bankr. M.D. Ala. 2015), reversed, 550 B.R. 557 (M.D. Ala. 2016), reversed and remanded, No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017).

ECMC [Educational Credit Management Corporation v. Acosta Conniff], No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017) (unpublished opinion).

ECMC [Educational Credit Management Corporation] v. Acosta-Conniff, 550 B.R. 557 (M.D. Ala. 2016), reversed and remanded, No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017).

Richard Fossey & Robert C. Cloud. Tidings of Comfort and Joy: In an Astonishingly Compassionate Decision, a a Bankruptcy Judge Discharge the Student Loans of an Alabama School Teacher Who Acted as Her Own Attorney. Teachers College Record, July 20, 2015. ID Number: 18040.

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Saturday, February 13, 2016

The Nightingale case: Elderly student-loan debtors need a swifter process for bankruptcy relief

Nightingale v. North Carolina State Education Assistance Authority, decided last month. demonstrates how difficult it is for distressed student-loan debtors to obtain bankruptcy relief--even if they are elderly and in poor health.

The Nightingale case: A 67-year-old retired teacher with chronic health problems seeks to discharge her student loans in bankruptcy

Alice Nightingale took out about $48,000 in student loans when she was in her late 50s to obtain a master's degree that would allow her to obtain a job as a public school teacher. Due to serious health issues, she went on disability leave in 2012 and received monthly disability benefits until she retired in  June  of 2014. After retiring, she lived on an income of $1,645 a month, consisting of Social Security income and state retirement benefits.

In June 2013, Nightingale filed for bankruptcy and received a discharge. She then filed an adversary complaint in the bankruptcy court to discharge her student loans.  North Carolina State Education Assistance Authority (NCSEAA), Nightingale's student-loan creditor, filed for summary judgment in 2014, arguing she was eligible for a long-term income-based repayment plan that would obligate her to pay zero on her student loans. Since paying nothing would not be an undue hardship on her, NCSEAA maintained, Nightingale was not entitled to a bankruptcy discharge.

Fortunately for Nightingale, Judge Benjamin A. Kahn, a North Carolina bankruptcy judge, denied NCSEAA's motion, pointing out that the creditor's reasoning would mean that the people who are most worthy of bankruptcy relief could never get it. Furthermore, the judge pointed out,"Participation in such a 'repayment' program in which [Nightingale's]  monthly payment is zero is not repayment at all; rather, the loan continues to accrue interest on the principal without any repayment. At the end of the twenty-five year period, [Nightingale's] loans may be forgiven, but that amount, on which interest has been accruing, may become taxable as income."

The case then went to trial, and Judge Kahn entered his decision on January 16, 2016. The judge ruled that Nightingale met two prongs of the three-pronged Brunner test. First, she could not pay back her loans and maintain a minimal standard of living. Indeed, Judge Kahn ruled, "the unrebutted evidence demonstrated that [Nightingale] is currently incapable of making any material payment on the debts while maintaining a minimal standard of living."

Brunner's second prong required Nightingale to show that she had made good faith efforts to pay back her loan.  Judge Kahn ruled that she met this prong as well. Nightingale had paid about $11,000 on he loans and was currently making income-based payments of $133 a month.

To obtain a bankruptcy discharge of her student loan, Nightingale was also required to pass the third-prong of the Brunner test by showing that exceptional circumstances prevented her from paying back her student loans in the future. In other words, she was obligated to show a "certainty of hopelessness" regarding her long-term financial circumstances.

Judge Kahn admitted that Nightingale's testimony supported a finding of exceptional circumstances. "Nightingale is elderly, has no job prospect in the field for which she was educated, lives on a meager budget, relies upon friends and family to provide shelter, and testified that she has additional medical disabilities that prevent her from returning to gainful employment." In fact, NCSEAA agreed that Nightingale's current situation was dire "and that she is barely able to remain healthy and in affordable housing, much less hold down a job."

But Judge Kahn ruled that Nightingale's own testimony about her chronic health problems was insufficient to show long-term financial distress without corroborating evidence. The judge indicated that corroborating evidence in the form of a letter from Nightingale's doctor about her health status would probably be sufficient and gave her 14 days to produce such a letter or other corroborating evidence of her health problems.

What is the significance of the Nightingale decision?

The Nightingale decision is significant for two reasons. First, Judge Benjamin Kahn flatly rejected a student-loan creditor's argument that Nightingale was ineligible for bankruptcy relief because she could enroll in a long-term income-based repayment plan that would require her to pay nothing due to her limited income. Had Judge Kahn adopted NCSEAA's argument, no student-loan debtor would be eligible for bankruptcy relief, at least not in Judge Kahn's court.

Second, the Nightingale decision demonstrates the difficulty distressed student loan debtors have when trying to discharge student loans in bankruptcy. First, Nightingale had to defeat NCSEAA's summary judgment motion, which took months to resolve. Second, she was required to round up corroborating evidence of her chronic health problems.

In many circumstances, it is entirely appropriate for a bankruptcy judge to require a student-loan debtor to provide proof of chronic health issues. As Judge Kahn correctly observed, when health problems are not obvious, corroborating evidence is necessary to avoid the possibility of fabrication and fraud.

But Alice Nightingale is 67 years old! She went on disability leave until she retired in 2014 and now lives on an income of only $1645 a month. Why was it necessary for her to provide corroborating evidence that chronic health issues prevent her from increasing her income in the future?

I don't mean to be too hard on Judge Kahn. He was obviously sympathetic to Nightingale's situation. After all, he denied NCSEAA's motion for summary judgment, and he gave Nightingale time to provide supporting evidence of her chronic health problems.  I feel sure the judge will ultimately discharge Nightingale's student-loan debt.

Nevertheless, when an elderly person living on a small pension and a Social Security check comes into bankruptcy court to discharge her student loans, I believe she is entitled to a speedy discharge. Unfortunately for Alice Nightingale, her adversary proceeding lasted more than two years. And her case may still not be behind her. If Judge Kahn discharges her student-loan debt, as seems likely, NCSEAA may appeal.

References

Nightingale v. North Carolina State Educ. Assistance Authority, 543 B.R. 538 (Bankr. M.D.N.C. 2016) (ruling requiring Nightingale to provide corroborating evidence of her chronic health problems).

Nightingale v. North Carolina State Educ. Assistance Authority, 529 B.R. 641 (Bankr. M.D.N.C. 2015) (ruling on NCSEAA's motion for summary judgment).

Sunday, January 31, 2016

Brenda Butler,"poster child" for the student-loan crisis, will be done with her student loans in 2037--42 years after she graduated from college

    You load sixteen tons, what do you get?
    Another day older and deeper in debt
    Saint Peter don't you call me 'cause I can't go
    I owe my soul to the company store
Tennessee Ernie Ford

If the student-loan crisis had a poster child, it might well be Brenda Butler, who lost her bankruptcy case last week in Illinois. Butler borrowed about $14,000 to get a degree in English and creative writing from Chapman University, which she received in 1995. Over the next 20 years, she made loan payments totally $15,000--more than the amount she borrowed.

Unfortunately, she was unable to make payments from time to time, and her debt grew due to accrued interest and penalties. When she filed for bankruptcy in 2014, Butler's debt had grown to almost $33,000, more than twice what she borrowed!

Did Butler get rich in the 21 years that passed since she graduated from college? No, she didn't. When she filed for bankruptcy she owned no real property and drove a 2001 Saturn that had logged 147,000 miles. According to the bankruptcy court, Butler never made more than about $35,000 a year, and her monthly income at the time of her bankruptcy filing was only $1,879, about $300 less than her expenses.

In spite of her bleak financial situation and an employment history of relatively low wages, a bankruptcy judge refused to discharge Ms. Butler's student loans. In fact, in applying the three-prong Brunner test, the court ruled that she failed to meet two of the prongs.

First, the court concluded that Butler was able to maintain a minimum standard of living, in spite of the fact that she was living on unemployment benefits at the time of her hearing and these benefits were about to run out. Indeed, the court admitted that Butler "had virtually no resources to support herself."

Nevertheless, in the court's view, Butler would likely find employment soon, which would enable her to maintain a minimum standard of living and make payments under an income-base repayment plan. Thus, Butler failed the first prong of the Brunner test.

Brunner's second prong required Butler to show that additional circumstances existed that prevented her from paying on her student loans in the future. Here again, the judge ruled against her. The judge found Butler to be "capable and intelligent with no health problems or other impediments to being gainfully employed." The court acknowledged that Butler had "an unfortunate employment history through no apparent fault of her own," but she could show no exceptional circumstances that would indicate that she could not pay back her student loans in the coming years.

Interestingly, the judge ruled in Butler's favor regarding one prong of the Brunner test. In the judge's view, Butler had met her burden of showing she had made good faith efforts to pay back her loans. As the judge acknowledged, Butler had made payments totally more than the original principal on her loans, and she had made diligent efforts to improve her financial status. "This is not a case of a recent graduate trying to escape student loan debts before beginning a lucrative career," the judge admitted. On the contrary, Butler had made "substantial, though futile, efforts to pay down her student loan debt."

So why did Butler lose her case? This is the bankruptcy judge's summary:
[Butler's] financial situation is unfortunate, but more than that is required for a finding of undue hardship under the demanding Brunner test. [Butler] has shown good faith in her efforts to remain employed and pay down her student loan debt. But as a healthy, intelligent, relatively young worker with a proven ability to secure productive employment, [she] is unable to prove that her student loan obligations prevent her from maintaining a minimum standard of living, now or in the foreseeable future. Thus. . ., [Butler's] student loan debt will not be discharged.
The Butler decision is particularly unfortunate because her situation is not untypical. Like a lot of people, she obtained a liberal arts degree from a private college that never led to a well-paying job. In spite of good faith efforts to pay back her loans, she was dragged down by exorbitant penalties and accruing interest, like thousands of other Americans.

And here is the final outcome. Brenda Butler will continue in a long-term income-based repayment plan that will not conclude until 2037--42 years after she graduated from college! 

Surely this is not what Brenda Butler envisioned when she enrolled at Chapman University in 1991 with bright hopes for a future as a writer.  And surely this is not what Congress envisioned when it passed the Higher Education Act more than 50 years ago.

And that is why Brenda Butler would make a good poster child for the student-loan crisis. A good person, who went to college in good faith and made good faith efforts to pay back her student loans, will be burdened with student-loan debt--mostly penalties and interest--until she reaches retirement age.

References

Butler v. Educational Credit Management Corporation, No. 14-71585, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).




Wednesday, January 6, 2016

Tetzlaff v. Educational Credit Management Corporation: The Seventh Circuit made a mistake when it refused to discharge a quarter of a million dollars in student-loan debt owed by an umemployed 56-year old man living on his mother's Social Security check

The Seventh Circuit Court of Appeals got it wrong when it affirmed a lower court ruling against Mark Tetzlaff, an unemployed 56 year-old man who tried to discharge $260,000 of student-loan debt in bankruptcy. Mr. Tetzlaff filed a petition for certiorari in October with the U.S. Supreme Court, seeking to have the Seventh Circuit's decision overturned. I hope the Supreme Court agrees to hear his case.

The Seventh Circuit applied the Brunner test too harshly.

In ruling against Tetzlaff, the Seventh Circuit determined that requiring Tetzlaff to repay more than a quarter of a million dollars in student-loan debt would not cause him "undue hardship." To reach this bizarre conclusion, the court applied the three-part Brunner test, which required Tetzlaff to show:
1) [He could] not maintain, based on current income and expenses, a minimal standard of living . . . if forced to repay [his] loan;
 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period;
3) [he] made good faith efforts to repay the loans. 
 At the time Tetzlaff filed his adversary hearing, he was 56 years old, unemployed, and living with his mother. Both he and his mother subsisted entirely on his mother's Social Security check. Thus, the court admitted that Tetzlaff met the first prong of the Brunner test: he could not pay back his student loans and maintain a minimal standard of living.

But the Seventh Circuit panel ruled that Tetzlaff had not meet the second prong of the Brunner test.  According to the court,Tetzlaff was required to show "the certainty of hopelessness" concerning his financial future.  In essence, the court predicted that Tetzlaff's financial situation will probably improve. After all, the court noted, "he has an MBA, is a good writer, is intelligent, and family issues are largely over" (quoting the lower court's opinion).

Moreover, in the Seventh Circuit's view, Tetzlaff had not made good faith efforts to pay back his loans, a requirement of the Brunner test's third prong.

Although Tetzlaff may not have made sufficient efforts to repay the $260,000 he was trying to discharge in bankruptcy, he had also borrowed money to attend Florida Coastal Law School; and he had paid back his law school loans. Tetzlaff argued in court that his successful effort to pay off his law-school loans showed his good faith,

But the Seventh Circuit did not buy Tetzlaff's argument.  In the court's view, Tetzlaff had not made a good faith effort to repay the $260,000 he owed to Educational Credit Management Corporation, the agency that was fighting Tetzlaff's bankruptcy discharge. Thus he failed the third prong of the Brunner test.

Where the Seventh Circuit went wrong: Low Job Prospects for Law Graduates

In my view, the Seventh Circuit erred when it refused to discharge Tetzlaff's student loan debt. 

First of all, a 56-year old man who is unemployed and has significant mental health issues (as he testified in court) will never pay back more than a quarter of a million in student-loan debt--a debt that is growing larger by the day due to accrued interest. The court would have ruled more realistically and more compassionately if it had applied the principle laid down by the Ninth Circuit's Bankruptcy Appellate Panel in its 2013 Roth decision: "[T]he law does not require a party to engage in futile acts." 

It is true Tetzlaff holds an MBA and a law degree, but these credentials are no guarantee of a good job, particularly given his age, his employment history, and his mental health issues. In fact, Tetzlaff's law degree may be almost worthless.  

As Paul Campos wrote in his 2012 book, Don't Go To Law School (Unless), the job market for lawyers is terrible. Indeed, Campos observed, "[L]aw schools are now producing more than two graduates for every available job."

And Tetzlaff's prospects for a legal job are especially dire since he failed the bar exam twice. In addition, he graduated from Florida Coastal Law School, one of the nation's bottom-tier law schools with very low admissions standard. According to Law School Transparency, a public interest group, 50 percent of Florida Coastal's 2014 entering class were at extreme risk of failing the bar exam based on their LSAT scores.

Law School Transparency pointed out that graduates of law schools with low admission standards have a much harder time obtaining employment than graduates from more prestigious law schools. "Legal job rates are considerably worse at the serious risk schools," Law School Transparency's report stated. "A serious risk school is 4 times as likely to have a below average legal job rate. Nearly three-quarters of schools with employment rates below 50% were serious risk schools."

Law School Transparency's recent report shows that borrowing money to attend a law school with low admissions standards is not a good bet. "Based on available salary data from serious risk schools, graduates from these programs cannot service their debts without generous federal hardship programs."

Nevertheless, Tetzlaff was wise to pay off his law-school debt first, since the law school would not release his diploma to him unless he paid that debt. And without a diploma, he would be unable to take the bar exam. In fact, Tetzlaff had no real choice in prioritizing his law school debt over his other student loan debt.

It is truly unfortunate that the Seventh Circuit showed both lack of compassion and lack of understanding by penalizing Mr. Tetzlaff for making the only sensible financial decision he could make.  He simply had to make paying his law-school debt a priority in order to have any hope of ever practicing law.

The Court Should Not Have Allowed ECMC to accuse Tetzlaff of being a malingerer

Educational Credit Management Corporation, perhaps the nation's most heartless and ruthless student-loan debt collector, opposed the discharge of Tetzlaff's student-loan debt, and it hired Dr. Marc Ackerman, a forensic psychologist, to bolster its case. Ackerman performed tests on Tetzlaff and testified that Tetzlaff "'scored very high on several malingering scales,' indicting that Tetzlaff was perhaps feigning his psychological symptoms."

I find it outrageous that Educational Credit Management Corporation's hired a forensic psychologist as a means of suggesting Tetzlaff is a malingerer. ECMC has fought bankruptcy relief for distressed student-loan debtors all over the United States, and its chief executives have grown rich in the debt collection business. For ECMC to force an unemployed man in his mid-50s to take a psychological exam in a bankruptcy proceeding to determine whether he is a malinger is detestable.

It is true that Tetzlaff introduced testimony about his mental health issues, but I don't think that gives ECMC license to use an expert witness to essentially attack his character. In my opinion, the bankruptcy court should have excluded the forensic psychologist's opinion on the grounds of common decency.

And if we are going to be looking into people's mental health, let's check the mental health status of the ECMC officials who opposed bankruptcy relief for Jane Roth, a 68-year-old woman with chronic health problems who was living solely on the income of a $774 Social Security check. Anyone who would persecute Jane Roth must have serious mental health problems--let's call it chronic undifferentiated greed.

Conclusion: The  Seventh Circuit committed a grave error in deciding the Tetzlaff case

The Tetzlaff decision was a bad decision. Mr. Tetzlaff should be commended for trying to improve his economic prospects by obtaining graduate education, and he should not be penalized because some of his educational choices may have been misguided.

Mr. Tetzlaff probably made a mistake when he borrowed money to attend Florida Coastal Law School.  But he should not suffer a lifetime penalty for mistakes he made in his good faith efforts to obtain an education. And people in bankruptcy should not be required to take psychological tests to determine whether they are malingers.

The Department of Education needs to rein in Educational Credit Management Corporation by insisting that it not oppose bankruptcy relief for people like Mark Tetzlaff. Unless it does that, DOE simply cannot continue to say with any credibility that it is trying to relieve the distress of millions of people who are unable to pay back their student loans.

References

Paul Campos. Don't Go To Law School (Unless). Self-published, 2012.
Roth v Educational Credit Management Corp, 490 B.R. 908, 920 (9th Cir. BAP 2013).
Law School Transparency. 2015 State of Legal Education. Accessible at: http://lawschooltransparency.com/reform/projects/investigations/2015/
John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html
Tetzlaff v. Educational Credit Management Corporation, 794 F.3d 756 (7th Cir. 2015). Accesible at: http://scholar.google.com/scholar_case?case=900247726541956067&hl=en&as_sdt=6&as_vis=1&oi=scholarr