News

Recent Articles/Programs

• 2022, November 17: "Justice Department and Department of Education Announce a Fairer and More Accessible Bankruptcy Discharge Process for Student Loan Borrowers.” Office of Public Affairs. Outline for Student Loan Discharge Guidance
• 2020, November 10, 2020: “Millions of Americans have been out of work for months.” by Tami Luhby, CNN Business
  Nearly 3.6 million Americans were out of work for at least 27 weeks in October, a stunning jump of nearly 50% from September, according to the jobs report released Friday by the Bureau of Labor Statistics. They now account for one-third of the unemployed, up from less than one-fifth a month earlier.
• 2020, November 7: “For Millions Deep in Student Loan Debt, Bankruptcy Is No Easy Fix” — by Ron Lieber and Tara Siegel Bernard
  It’s an extremely difficult debt to discharge, and only a few hundred people a year even try. Here are the stories of some who succeeded — mostly
• 2014, September 23: “How Bad Is the Student Debt Crush?” – NBC (video)
  Trillion-dollar problem that is causing many students to opt out of going to college.
• 2014, September 22. “Did Student Loans Just Become Dischargeable?” by Richard M. Williams. HFS News.
  The 8th Circuit Court of Appeals ruled in favor of Chelsea Conway to have her 20 student loans discharged through bankruptcy after a lower court denied her petition. Importantly, the court based its findings on her income at the time of filing and “not substitute assumptions or speculation for reasonably reliable facts.” This will invalidate the Brunner test.
• 2014, September 10: “Number of aging Americans paying student loans soars -U.S. report.” – Reuters.
  People 65 years old and older are carrying $18.2 billion in unpaid student loans. That means 4% of households headed by someone over 65 years old are still juggling the debt which has grown significantly since 2004.
• 2014, September 10: “Student Debt Collections Are Leaving the Elderly in Poverty.” – Bloomberg Businessweek
  Of those over 65 years of age still paying student loan debt, 31% were in default.
• 2014, September 10: “Student debt and the elderly: The government is driving senior citizens into poverty to collect on their student loans.” - Slate: Moneybox.
  If a barrower is more than 425 days late in making payments on federal student loans, the government has the power to withhold Social Security retirement and disability payments. By 2013, the GAO estimates that 36,000 elderly Americans have their benefits garnished to pay on student loans.
• 2013, May 23. “9th Circ Relieves Broke Law School Grad of Student Debt.” By Kurt Orzeck. Law360.
  Very important analysis of the Hedlund case. Four years after graduating law school with $85,000 in student loans, Michael Hedlund was unable to land a job that would pay him enough to make the student loan monthly payments of $800/m besides living expenses. He failed to pass the bar exam three times and was unable to work in the field he obtained student loans for. This decision applies to all the 9th Circuit (Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Northern Mariana Islands, Oregon, and Washington). This means that these bankruptcy courts no longer require debtors to be older, disabled, or in abject poverty, but rather just unable to maintain a middle-class living. Be sure to review this case.
• 2013, April 16. “Tide may be turning for student loan dischargeability in bankruptcy.”   By Weltman & Moskowitz. News & Resources.
  Excellent summary article about the implications of the Roth case. Roth was a 64-year old debtor that Department of Education was forcing on to a 25-year repayment plan. The court ruled that was unreasonable and that the Brunner test was “truly a relic of times gone by.” The court ruled that debtors need to make “reasonable efforts” to repay student loans and not “extreme efforts” such as moving to another city or state to seek out lower living expenses.
  Another article on the Roth Case:
  “A Judicial Turn Toward Compassion and Common Sense: the Ninth Circuit is Treating Bankrupt Student-Loan Debtors More Sympathetically.”   By Robert C. Cloud, Ed.D. & Richard Fossey, J.D., Ed.D.
• 2011, October: Default: The Student Loan Documentary
  Auroora Meneghello, Director/Writer; Serge Bakalian, Producer/Writer.
• September 25, 2012: “An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard.”   By Jason Iuliano, Harvard University Law School. American Bankruptcy Law Journal 495.
  For years, academics have argued that the undue hardship standard for discharging student loans in bankruptcy is both unduly burdensome and applied in an inconsistent manner. By reviewing a nationwide sample of student loan bankruptcy disputes, this study shows that neither criticism is warranted. First, judges grant a hardship discharge to nearly forty percent of the debtors who seek one. Second, successful debtors differ from their unsuccessful counterparts in three important respects. They are (1) less likely to be employed, (2) more likely to have a medical hardship, and (3) more likely to have lower annual incomes the year before they filed for bankruptcy. The real failing of the student loan discharge process is lack of participation by those in need. Incredibly, only 0.1 percent of student loan debtors who have filed for bankruptcy attempt to discharge their student loans. That statistic is even more surprising in light of this Article’s finding that a debtor does not need to hire an attorney to be successful. In fact, debtors without attorneys were just as likely to receive discharges as debtors with attorneys were. Ultimately, the low rate of filing shows that, although the system is broken, many of its flaws stem from a failing not previously discussed in the literature.
• 2009, December 25: Student Loan Sinkhole?
  PBS special that documents the terrible pain large student loans are placing on millions of Americans.
• 2009, June 29: Clinton Takes on Student Loan Industry (New York Times)
  Senator Hillary Rodham Clinton has proposed legislation returning the dischargeability of student loans through bankruptcy to their 1998 status as unsecured debt.
• 2009, April: Student Loans Discharged; Court Rules That Wife’s Income Not Relevant in Determining Income for “Undue Hardship” Analysis  by Craig Andresen, Minneapolis, MN, Bankruptcy Attorney
  A Minnesota bankruptcy court recently held that the income of a non-debtor wife should not be considered to increase the income of a chapter 7 debtor, for purposes of considering whether the husband’s student loans should be discharged as constituting an “undue hardship.” The court held that while the wife’s income could be considered to the extent that her income reduced the husband’s living expenses, her income should not be automatically added to the husband’s income, in evaluating his monthly income and expenses. Read entire article here.
• 2005: Undue hardship in the bankruptcy courts: An empirical assessment of the discharge of educational debt
  “More than half (57%) (of student loan debtors who filed an adversary proceeding were) . . . granted some form of relief—whether in the form of full discharge, partial discharge, or equitable adjustment. . .” They concluded, “. . . the situation for student loan debtors might not be as stark as it has been portrayed – that is, that an undue hardship discharge is the exception.”
  (p. 479) University of Cincinnati Law Review, Vol. 74, 2005, pp.405-529. By: Rafel I. Pardo, Associate Professor of Law, Tulane University, and Michelle R. Lacey, Assistant Professor, Department of Mathematics, Tulane University.
• 2002: The Law of Reopening: Revisited by Alexander L. Edgar Concise legal review of the legal right to reopen a bankruptcy.

Court Cases

The 2020 major revision of the bankruptcy book is now 100 pages longer and contains 45 cases reviewed in detail (including cases from 2020). Thirty-four of those case studies are where the debtor won. Here are just a few.

• 2014, June 9: Conway v. National Collegiate Trust, 8th Circuit Appellate Case 13-3104, 6/9/2014. Basically invalidates the Brunner Test that assumes future earnings will improve but base the analysis on the income of the debtor at the time of the filing.
  
  
• 2013, May 22: Michael Eric HEDLUND v. The Educational Resources Institute Inc. et al., case number 12-35258, in the U.S. Court of Appeals for the Ninth Circuit (May 22, 2013). Analysis based on “reasonable” living standards and not “extreme” poverty.
  
  
• 2013: In re Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).
  
  
• 2009, March: Cathy Coleman vs. Educational Credit Management Corporation (No. 06-16477, 2009) The Ninth Circuit Court found that Coleman’s student loans could be discharged by the court during a Chapter 13 plan by filing an adversary proceeding. This has been appealed to the U.S. Supreme Court.
  
  
• 2009, September 25. “In re Robert Jacob SCOTT and Sarah Jane Scott, Debtors. Robert Jacob Scott and Sarah Jane Scott, Plaintiffs v. U.S. Department of Education; Educap, Inc., The Education Resources Institute (TERI), et. al, Defendants. Bankruptcy No. 07-14317. Adversary No. 07-01367. United States Bankruptcy Court, W.D. Washington, at Seattle.”
  
  The importance of these cases is that they show average people (couple in their mid-30s with two children) faced with average life challenges and the court deciding that repaying their student loans constituted an undue hardship. Later, the 9th Circuit would reaffirm this in the Hedlund case. No longer do you need to be old, disabled, or living in absolute poverty to have student loans discharged by the court.
  
  
• 2008, October: Espinosa v. United Student Aid Funds (In re Espinosa), ---- F. 3d ----, 2008 WL 4426634 (9th Cir. October 2008)
  During Espinosa’s Chapter 13 bankruptcy, she listed her student loans as part of the bankruptcy plan, the creditors were notified and did not object. Once the plan was completed, the judge discharged her loans without her having filed an adversary proceeding. Three years later, the creditor complained that they were not notified correctly as required for the adversary proceeding. The court upheld their right to discharge the loans since sufficient notice had been given the creditor.

Here are some additional cases where debtors prevailed in having their student loans discharged in bankruptcy. You may learn of some tips in their presentations. The most recent version of the book contains 34 cases where the debtor won and are described in detail (many cases from the past five years). Buy the book to learn these details. Here are just a few.

• 2020, April 4. Koeut v. U.S. Dep't of Educ. (In re Koeut). Full title: In re: SETH KOEUT, Debtor, SETH KOEUT, Plaintiff, v. U.S. DEPARTMENT OF…Court: UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF CALIFORNIA. BANKRUPTCY NO: 12-07242-MM7 (Bankr. S.D. Cal. Dec. 4, 2020)
• 2013, April 10. Krieger v. Educ. Credit Mgmt. Corp., No. 12-3592 (7th Cir. Apr. 10, 2013).
  
  
• 2007, June 20. Christian D. MENDOZA, Chapter 7, Debtor. Christian D. Mendoza, Plaintiff, Educational Credit Management Corporation; Hemar Insurance Corporation of America, Defendants. Case No.-01-53238-MM. Adversary No. 01-5283. United States Bankruptcy Court, N.D. California. Example of debtor who prevailed to have his student loans discharged.
  
  
• 2006, April 26. In re Lorna Kaye NYS, Debtor, Educational Credit Management Corporation, Appellant, v. Lorna Kaye Nys, Appellee. No. 04-16007. United States Court of Appeals, Ninth Circuit. Argued and Submitted February 15, 2006. Filed April 26, 2006. 446 F.3d 938.

Legislation

• 2020, January 3. “Discharging Student Loans in Bankruptcy.” H.R.3027 permits student loan borrowers to discharge federal and private loans in bankruptcy and reinstates the six-year statute of limitations for certain student loans.
  This bill would also do the following:
  1. Protect against wage garnishment, offset of retirement and disability benefits, and offset of income tax refunds
  2. Make the Parent PLUS loan eligible for income-based repayment plans
  3. Prevent defaults on student loans from blocking access transcripts and diplomas
  4. Ban student loan default from affecting professional licenses
  5. Add partial public service loan forgiveness after 60 months (5 years) of payment
  H.R.770 and H.R. 885 also propose to discharge student loans in bankruptcy.
• 2020, January 3. “Student Loan Forgiveness.” Senator Elizabeth Warren proposes discharging up to $50,000 in student loans for eligible borrowers in the Student Loan Debt Relief Act of 2019 [S.2235]. S.1248 excludes from income the discharge of federal student loans at the end of income-contingent or income-based repayment. H.R.3887 will discharge up to $50,000 in federal student loans per borrower, phased out for borrowers with an AGI of $100,000 or more ($200,000 for joint filers). The bill also allows borrowers to refinance private student loans into federal student loans and thereby obtain discharge of the student loans. The bill also repeals the exception to bankruptcy discharge on federal student loans. S.2168 allows for a forgiveness plan for ranchers and farmers.
  As an amendment to the Fair Debt Collection Practices Act, H.R. 5287prohibits debt collectors from collecting on certain federal student loan debt when the borrower is not required to make payments under an income-driven repayment plan.As an amendment the Fair Credit Reporting Act, H.R. 3621 proposes to remove adverse information for certain defaulted or delinquent private education loan borrowers who demonstrate a history of loan repayment. As an amendment to the Higher Education Act of 1965, H.R. 3786proposes to allow a higher education institution to cosign federal student loans made to the student. H.R.3418 makes graduate and professional students eligible to receive subsidized Stafford Loans under the Federal Direct Loan Program beginning on July 1, 2019.
• 2020, December 15. “ S.5023 - Ending Administrative Garnishment Act of 2020.” Sponsor: Sen. Booker [D-NJ]
  NASFAA Summary & Analysis: This bill would suspend wage garnishments for those who have defaulted on their student loans and revise income-driven repayment plans and required that if an individual's wages are improperly garnished the Secretary of Education will pay the borrower back twice of what they paid. The bill would also repeal the Department of Education's ability to garnish wages from an individual if the loan has been outstanding for more than ten years and prevent the Department of Education from garnishing more from a student loan borrower than a similarly situated borrower would pay under an income driven repayment plan.
• 2014, June 10: “Obama’s Student Loan Forgiveness Program.” By Forget Student Loan Debt.
  President Obama announced new changes to the Federal student loan forgiveness program, including one sweeping change that makes the extremely valuable Pay As You Earn Student Loan Repayment Plan available to over 5 million more borrowers. Here are the details of President Obama’s executive order:
  
  • The Pay As You Earn repayment program will have its eligibility criteria relaxed, allowing anyone with Federal student loan debt to qualify for the plan (say goodbye to the October 2007 restriction!)
  • Eligibility to enroll in the program will not open up until December, 2015, so those of you who don’t qualify for it under the current restrictions will have to wait until then to apply
  What is Pay As You Earn?
  One of the biggest problems to President Obama’s student loan forgiveness program is that most people aren’t even aware of it’s existence. We’ve all heard about Obamacare, but not everybody knew about Pay As You Earn, and that’s a shame, because it’s an extremely valuable program. Pay As You Earn is the newest of the 7 Federal Student Loan Repayment Plans, and was first introduced as part of President Obama’s sweeping student loan reforms proposed in 2011, and officially live as of 2012. Borrowers who sign up for the Pay As You Earn repayment plan have their monthly Federal student loan payments capped at just 10% of discretionary income, saving hundreds to thousands of dollars per month. The downside to Pay As You Earn is that it extends the life of a loan by adding payments, and making the total loan more expensive since interest has more time to accumulate additional debt. However, to protect borrowers from facing significantly more debt, Pay As You Earn also offers comprehensive student loan forgiveness once 20 years of full, on-time, scheduled monthly payments have been made. In addition, those borrowers working in public service, either for the Government of a Nonprofit organization, are offered student loan forgiveness after making just 10 years worth of on-time payments. Pay As You Earn might not be the best student loan repayment plan for you, since it depends on your particular situation (the amount you owe, your interest rate, your income, the poverty line for your state and family size, etc.), but it is a great option for many borrowers, especially those struggling to make their existing monthly payments, or those with excessive levels of student loan debt and no real hope for ever paying it off. For additional details about the Pay As You Earn plan, and to find out if it’s the best repayment plan for you, please visit.
  
  The primary problem with the program (just as any ICR program) is the outstanding debt discharged after 20 years is considered income by the IRS. Imagine being 65 or 70 years old and being faced with a tax bill of tens of thousands of dollars or more?
• 2009: Legislation introduced by Senator Hillary Clinton (110 S. 511), the Student Borrower Bill of Rights Act of 2007, would restore the pre-1998 language which allowed for a discharge of education loans after seven years in repayment.