I’ve been reading many interesting comments online about yesterday’s Supreme Court ruling in Espinosa. Some of my colleagues are suggesting that this is a huge win for consumer debtors. I think Mr. Espinosa is justifiably happy. I’m not sure creditor’s attorneys are happy. I’m think debtor’s attorneys can be happy, sort of. I think Bankruptcy Judges might have something to be concerned with… and if it concerns Bankruptcy Judges, it ought to concern me.
And it does.
In another unanimous decision relating to an important bankruptcy issue, the US Supreme Court today ruled that a student loan creditor’s failure to object to confirmation to a chapter 13 plan was fatal to the creditor’s post-discharge attempts to collect the debt.
Today, my Bankruptcy Colleague and fellow-blogger Jonathan Ginsberg wrote about The Psychology of Debt Collection: Avoid the Manipulation.
The Boston Globe reports that the Massachusetts Attorney General has filed a bill to slow down foreclosures. But the legislation would only protect those in “risky” loans. And if people keep losing their jobs, homeowners with “risky” loans will not be the only ones facing the possibility of losing their home.
Meanwhile, in Washington, a bill that would let some homeowners in Chapter 13 modify the mortgage on their principal residence has cleared the House Judiciary Committee.
While homeowners might be getting a break, recent graduates are finding it tougher and tougher to pay off student loans. An opinion piece in the Minneapolis Star Tribune suggests that a good way to stimulate the economy may be to forgive student loan debt.
The Federal Reserve however, seems to have another idea, although I am not convinced it’s a better idea. From CNNMoney.com:
The Federal Reserve is getting ready to launch a new program that should make it easier for consumers to get credit-card and auto loans — though not necessarily at lower interest rates.
Yikes.
Debtors with student loans have an often insurmountable burden in proving their loans are dischargeable in bankruptcy. Section 523(a)(8) requires them to show that the loans are an undue hardship and an example of how the definition of “undue hardship” lacks any common sense can be found here. Lately, many bankruptcy attorneys I have spoken to have admitted that they question the disparity in the treatment that debtors with high mortgage debt receive versus those with high student loan debt.
In its February 2, 2009 issue, Forbes looks at the issue of what it calls “The Great College Loan Hoax.”
Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.
But anybody who has gotten a passing grade in statistics knows what’s wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn’t have increased his income.
This (along with the rest of the article) is a refreshing read. I expect in the months and years to come, there will be more discussions over the trend of forcing students into a debt that is nearly impossible to shed (or for that matter, pay) while dangling the carrot of an education and with that, the promise of a better life.
According to the article, the average law school graduate will emerge with over $100,000 in student loan debt. Based on discussions with law students I have met, I do not believe that it is an inaccurate assessment. Law firms are laying off. The economy continues to sour. Jobs will be scarce – and I am meeting more and more recent graduates who find themselves forced (much like I did almost 18 years ago) to hang up a shingle and establish a practice. However, those realities will not be considered an undue hardship.
I’ll put it this way: it’s far easier to walk away (in any chapter of bankruptcy) from a few properties, a few mortgages, and hundreds of thousands of dollars or more in obligations, than it is to walk away from student loan debt. Yet the unlucky, unwise or unfortunate real estate investor likely has the benefit of the societal safety net that bankruptcy offers. It seems that there is less risk to entering into an “exotic mortgage” than to get a degree in a subject area that might – or might not – have a job waiting for me after graduation. Something doesn’t seem right about that.
While many might be on vacation, I was too busy to pull together a Storm Preparation for today. I did however manage to find a few news items.
Remember Filene’s? This gaping hole– which looks like England after WWII – is about a block from my office. Like many of my clients, this development project is struggling. But the silver lining is that I can tell clients exactly where my office is so long as they can find this gaping hole.
It’s only a flesh wound! University of Michigan researchers say if we’re in a recession, it’s a mild one.
From Time Magazine: Apparently, there are really stupid ways to pay for an education.
LA Times: Remember that “landmark housing bill” the President signed last month? It might not work out the way they hoped.
I imagine that’s how the folks who dug that hole at Filene’s feel.
It is exceptionally difficult – and for many, impossible – to discharge student loans in bankruptcy. Section 523(a)(8) exempts such loans from discharge unless the debtor can show that exempting the debt from discharge will “impose an undue hardship on the debtor and the debtor’s dependants.” This is a high burden. A May 12, 208 decision out of the Bankruptcy Court for the District of New Jersey demonstrates how high that burden is. And the facts of this case call into question the soundness of the underlying policy behind 523(a)(8).
At the time she filed her case, the debtor was collecting $951 per month in unemployment benefits along with $200 in general assistance ($124 of that is paid directly for rent in her subsidized housing). She collected $120 per monthin food stamps, and her other expenses were minimal. The debtor incurred about $6,900 student loans in furtherance of a degree as a medical lab technician. After taken a number of courses, she determined that the field was not for her and while the opinion doesn’t mention it, she presumably stopped her education.
Shortly thereafter, she was involved in a car accident. As a result of the accident, she suffered from Spinal Cervical Stenosis and received cortosteroids. Her only other treatment available is surgery, but she testified that her doctors are reluctant to operate because she’s 38 years old.
After that, she worked at a variety of low-paying jobs, making a total of just over $1,500 in payments toward the loans. She was able to make the payments because she lived with her folks at a minimal expense. She eventually obtained more gainful employment as a truck dispatcher, which enabled her to move out of her parents’ house, but that only resulted in an increased strain on her finances. During this time, she sought and was granted forbearances.
Today, a unanimous Supreme Court ruled that the US government can offset Social Security benefits to collect delinquent student loans – even loans that have been outstanding for more than ten years.
The case is Lockhart v. United States.
Boston Office:
77 Franklin Street
Boston MA 02110
617-542-2956
View map and directions
TOLL-FREE NUMBER:
1-86-NEW-START
(1-866-397-8278)
©McLeod Law Offices, P.C.
All rights reserved
PLEASE READ THE TERMS AND CONDITIONS OF THIS SITE
site by galiel new media
