Showing posts with label Stevenson v. Educational Credit Management Corporation. Show all posts
Showing posts with label Stevenson v. Educational Credit Management Corporation. 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. 


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


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).