Showing posts with label Jane Roth. Show all posts
Showing posts with label Jane Roth. Show all posts

Tuesday, January 26, 2016

Bear Baiters: Creditors' Lawyers Make Sport of Distressed Student-Loan Debtors Who Stumble Into the Bankruptcy Courts

Bear-baiting is a blood sport  involving the worrying or tormenting (baiting) of bears. 

Wikipedia

Bear baiting is an ancient sport in which spectators sit in an arena and watch dogs attack a chained bear. Traditional bear baiting is outlawed in the United States, but a modern variation is still legal and practiced all over America.

In the new format, student-loan debtors substitute for the bear, lawyers and judges take the place of vicious dogs, and the venue has been changed from sporting arenas to the bankruptcy courts.

Here are some bear-bating examples. Jane Roth, a 68-year old woman with chronic health problems, filed for bankruptcy to discharge more than $90,000 in student-loan debt--almost three times more than she actually borrowed. At the time of her bankruptcy filing, Roth was living on $774 a month, and it was clear she would never pay back the 90 grand she owed. 

Educational Credit Management (ECMC), her main creditor, opposed a bankruptcy discharge and litigated the matter all the way to the Ninth Circuit's Bankruptcy Appellate Panel. It must have been great fun for the lawyers, and I'm sure they were well paid for harrying Ms. Roth. Unfortunately for ECMC, the Ninth Circuit's BAP put an end to the fun, and discharged Ms. Roth's student-loan debt, ruling it would be futile to put her in a long-term loan repayment plan.

And here is another example. Janice Stevenson, a woman in her 50s, filed for bankruptcy to discharge $114,000 in student-loan debt, far more than she originally borrowed. Stevenson had a record of homelessness, and at the time of her bankruptcy proceeding, she was living in publicly-subsidized housing on an income of $1,000 a month, which included short-term unemployment benefits.

Judge Joan Feeney, a Massachusetts bankruptcy judge, refused to discharge Ms. Stevenson's student loans in bankruptcy. Instead, the judge concluded that Ms. Stevenson was a candidate for a long-term income-based repayment plan, a plan that would obligate her to make student-loan payments for 25 years--a half century after she took our her first student loan!

In my view, the attorneys in the Roth case, the Stevenson case, and dozens of other student-loan bankruptcy cases, are bear baiters. Debtors stand utterly defenseless in the bankruptcy courts--many without  lawyers--like chained bears, while heartless attorneys for the Department of Education, ECMC, or another student-loan creditor make sport of their plight. The creditors' attorneys get paid and go home to eat nice dinners and dream of their next exotic vacation.  And all too often, student-loan debtors walk out of the bankruptcy courts facing almost a lifetime of indebtedness that they cannot discharge.

So this is the national situation:  Over 40 million people owe money on student loans, and at least 20 million are unable to pay it back. Seven million have defaulted, while others are delinquent or in deferment plans or long-term income-based repayment plans.

Millions of people are their seeing loan balances grow due to accruing interest, penalties, and collection fees. In fact, it is not uncommon for people to owe two or even three times what they borrowed. Most of these people deserve relief, and the only place they will find it is in the bankruptcy courts.

Fortunately, a few compassionate bankruptcy judges and federal appellate courts are ruling in favor of student-loan debtors and granting them relief from their crushing debt.  The Roth case, in particular, is hugely important, because the Ninth Circuit's Bankruptcy Appellate Panel applied principles of equity to discharge Jane Roth's debt.

But only time will tell whether the bankruptcy courts will be places where honest but unfortunate debtors can find relief or whether they will continue to be bear-baiting arenas. 



Image result for bear baiting


References

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP  2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).

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