Showing posts with label bankruptcy attorneys. Show all posts
Showing posts with label bankruptcy attorneys. Show all posts

Tuesday, May 7, 2019

A Kansas bankruptcy judge grants Vicky Jo Metz a partial discharge of her student loans, and she wins her appeal

Vicky Jo Metz borrowed $16,613 back in the 1990s to attend a community college, but she never got a degree. Over the years, she filed for bankruptcy three times, but she continued making payments on her student loans under court-approved repayment plans. In fact, she paid almost 90 percent of what she originally borrowed.

Nevertheless, Metz's student-loan debt kept growing due to accruing interest. By 2018, her total debt had grown to $67,277--four times what she borrowed. 

In 2017, Metz commenced an adversary proceeding in a Kansas bankruptcy court, seeking to discharge her student loans. Her creditor, Educational Credit Management Corporation (ECMC), objected to a discharge. Put Metz in an income-based repayment plan (IBRP), ECMC demanded. 

But Bankruptcy Judge Robert Nugent disagreed. Metz, who was 59 years old, would never pay off her student loans under an IBRP, Judge Nugent reasoned. On the contrary, if Metz entered a 25-year IBRP and faithfully made her income-based monthly payments, her debt would continue to grow due to accruing interest. By the time Metz completed her repayment plan, she would owe $157,277—nine times what she borrowed! Although her student-loan debt would be forgiven after 25 years of making payments, Metz would face significant tax liability because the IRS considers forgiven debt as taxable income.

 Judge Nugent granted Metz a partial discharge of her student loans. He canceled all the accrued interest on her student debt but required her to pay the original $16,613.

ECMC appealed Judge Nugent's decision to a federal district court, and Judge John Broomes upheld Judge Nugent's ruling. Like Judge Nugent, Judge Broomes applied the three-part Brunner test to determine whether it would be an undue hardship for Metz to repay her student loans.

In Judge Broomes' view, Metz could not repay her student loans and maintain a minimal standard of living. Thus, she met part one of the Brunner test. Moreover, she met part two of Brunner because her financial situation was not likely to change. Finally, in Judge Broomes’ view, Metz met part three of the Brunner test because she had handled her student loans in good faith.

In its appellant’s brief, ECMC renewed its argument that Metz should be placed in an IBRP and downplayed the tax consequences of such a plan. Metz would probably suffer no tax consequences from an IBRP, ECMC argued, because she would likely be flat broke when her IBRP concluded.  Under current law, ECMC pointed out, individuals pay no federal tax on forgiven debt if they are insolvent at the time the debt is forgiven.

In a footnote, Judge Broome pointed out the absurdity of ECMC’s position “The import of that argument,” Judge Broome wrote, “is that under ECMC’s plan, [Metz] will be kept insolvent, if not entirely impoverished, until she is eighty years old and the debt is forgiven—what a pleasant system.”

Judge Broomes’ Metz decision is the second appellate court decision out of Kansas to uphold a bankruptcy court’s partial discharge of student-loan debt. The first decision, Murray v. ECMC, granted a partial discharge to Alan and Catherine Murray, a married couple in their late forties, whose student-loan debt had quadrupled over 20 years due to accruing interest.

Together, Metz and Murray stand for the proposition that long-term, income-based repayment plans are not appropriate for insolvent student-loan debtors when it is clear that debtors in these plans will never pay off their loans. Had ECMC had its way with Vicky Jo Metz, she would have made monthly student-loan payments for a quarter of a century—until she was in her eighties.  At that point, she would face a huge tax bill for $150,000 in forgiven debt or she would be insolvent. As Judge Broome remarked: What a pleasant system.



References

Educational Credit Management Corporation v. Metz, Case No. 18-1281-JWB (D. Kan. May 2, 2019).

In re Murray, 563 B.R. 52 (Bankr. D. Kan 2016); aff’d sub nom. Educational Credit Management Corporation v. Murray, No 16-2838, 2017 WL 4222980 (D. Kan. Sept. 22, 2017).

Tuesday, March 21, 2017

Finally, More Bankruptcy Attorneys Getting on the Student Loan Discharge Bandwagon--article by Steve Rhode

This excellent essay by Steve Rhode originally appeared on the Personal Finance Syndication Network, PFSyncom.  Mr. Rhode also maintains a web site titled Get Out of Debt Guy that contains a variety of good advice and information about all manner of consumer debt problems, including student loans.  You can learn more about Steve Rodes here.

In addition to the attorneys listed in Mr. Rhode's article, I would like to commend George Thomas, a Kansas attorney, who did a great job representing Alan and Catherine Murray against Educational Credit Management Corporation  in a Kansas bankruptcy court. Mr. Thomas won a partial discharge of the Murrays' student loan debt. That case is now on appeal.


In addition,Eugene R. Wedoff, retired bankruptcy judge and incoming president of the American Bankruptcy Institute, is defending Alexandra Acosta-Conniff in an Alabama bankruptcy case now on appeal before the Eleventh Circuit Court of Appeals.


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Finally, More Bankruptcy Attorneys Getting on the Student Loan Discharge Bandwagon

 by Steve Rhode


A recent MarketWatch piece by Jillian Berman did a great job of not only naming a bunch of attorneys I’m proud to call friends, but debunking this myth that there is nothing that can be done about student loans in bankruptcy.

I get so frustrated when consumers tell me they went to a bankruptcy attorney and was told there was no hope for dealing with their student loans, when there clearly was.

The article quotes four attorneys who all make the same point, there are legal options for dealing with student loans in bankruptcy. Don’t believe everything you’ve been told that there are no options – That’s Fake News! Want to learn more, here you go.

Attorney Richard Gaudreau is mentioned, “Nobody is doing anything for these people in terms of laws to benefit them,” said Richard Gaudreau, a New Hampshire-based bankruptcy attorney, who’s been working on student loan issues for the past few years. “We’re just forced to be creative.”

And when he says creative, what he’s really saying is applying some brain power and creative thinking to look at the law under new light to find where is already applies to dealing with student loans.

That’s what attorney Austin Smith is doing, and winning.

“Taking that logic one step further means that student loans from private lenders can be discharged in bankruptcy if they were made to students who didn’t attend an accredited program or were lent more money than the cost of attendance. Possible debts that fit into this category could include the aforementioned bar study loan or a loan to attend an unaccredited trade school, Smith said.

“A loan is not like a scholarship or a stipend and such a private loan cannot be included in this definition. If I were to interpret educational benefit to include loans that has some relation to attaining an education, it would render the other two provisions of [the bankruptcy code as it relates to student debt] totally superfluous,” the judge said, according to a transcript.

“I have yet to go in front of a judge who disagrees with my overall thesis, which is that not all student loans are not dischargeable,” Smith said. “I do think the tide is now turning on that.”

Then there is attorney Lewis Roberts, “Roberts’s intervention is to get judges and trustees to classify the federal student loan debt separately so that his clients can take advantage of special payment plans the government offers borrowers to manage their student loans.”

Attorney Jay Fleischman said, “This fight is just in its infancy,” he said. “We’re seeing the birth of it in many ways.”

Steve Rhode

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If you have a credit or debt question you’d like to ask, just click here and ask away. 

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network