(800) BANKRUPT
Free Case Review
Fill out this form for a FREE,
Immediate, Case Evaluation
Most Recent News
- Are Tour Buses and Charter Buses More Prone to Bus Accidents?
- Why Does Washington State Top The On-The-Job Injury List?
- Why Are Vehicular Deaths Amongst Washington Native Americans So High?
- Why Are Low Income People Charged More For Car Insurance?
Bankruptcy: Congress and Supreme Court Stand Up for the Little Guy
This was a pivotal week for many college students and graduates. Both Congress and the Supreme Court made decisions that could affect when and how they pay back student loans and what the consequences of default are. This affects more Americans than you might have guessed.
During the economic downturn starting in 2007 many adults have used their time unemployed or under employed to go to school. This means increasing their debt load even further. Then, when they are done with their trade school training or advanced degree, they find that the job climate is just as dismal. Now they have doubled, tripled, or even quadrupled their debt load and are forced to file either a chapter 13 or chapter 7 bankruptcy.
This was the case in the last massive economic downturn in 1992, when a massive deficit and inflated housing market caused the economy to plummet and causing massive layoffs and foreclosures. Many people don’t remember that, but Francisco J. Espinosa does. He just ended a long battle that went all the way to the supreme court where he won. And who says you can’t fight massive lenders.
The Supreme Court Bankruptcy Case
Espinosa, an airline ramp agent, took out four student loans in 1988 and 1989 for a total of $13,250 to attend a trade school in Arizona. He graduated and searched for a job. Then he was forced to file for protection under the bankruptcy laws, proposing to repay the principal over five years without interest.
But the lender did receive notices from the court about Mr. Espinosa’s proposal and the court’s approval of it. Although the loan was the only debt Mr. Espinosa listed in his proposal, the lender did not object or appeal.
Espinosa paid the principal back in five years. The bankruptcy court then discharged the interest he would have owed. Years later, the lender decided to re-open the case.
The Chapter 13 section of the bankruptcy code allows student loans like Mr. Espinosa’s to be discharged only if a judge finds that repayment would impose an “undue hardship.” But the judge in his case made no such finding.
United Student Aid Funds, the lender in Espinosa’s case, warned in a brief that a decision in his favor would “open the floodgates” to allowing others to avoid paying their debts, including “taxes, domestic support obligations, drunk driving personal injury and death liabilities, and criminal fines and restitution.”
The Supreme Court disagreed and ruled in favor of Espinoza. Justice Thomas wrote that, even though there had been legal misfires along the way, the issue before the court was whether the lender had waited too long to object to them.
“The bankruptcy court’s failure to find undue hardship before confirming Espinosa’s plan was a legal error,” Justice Thomas stated in United Student Aid Funds v. Espinosa, No. 08-1134. “But the order remains enforceable and binding on United because United had notice of the error and failed to object or timely appeal.”
This is not particularly language that would “open the flood gates”, but is does give an interesting precedent that may make it easier for students to get protection from student loan debt as well as their other debts when in the past they may not have been able to get relief from student loans regardless of their bankruptcy filing.
Now it seems that students are getting another break thanks to the Legislative Branch of government.
The Congress Acts
Statistics show that in the U.S., many are coming out of college with 10s or even hundreds of thousands of dollars in student loans accrued. Pell Grants allow for a little relief. They are issued by the government and don’t require repayment. That means that student loans and the interest associated with them is minimized.
When Pell Grants were created in 1972, the maximum grant covered nearly three-quarters of the average cost of attending a public four-year college. By 2008, which is the most recent year for which figures are available, the maximum grant covered about a third of the cost.
The Congress passed a measure yesterday that increased Pell Grants by a margin of 220-207 as part of an expedited bill that also fixed provisions in the new health care law. Earlier, the Senate passed the bill 56-43.
It increases the maximum size of Pell Grants, which do not have to be repaid, but top out in 2009-10 year at $5,350. For the 2010-11 year (starting July 1, 2010 and closing June 30, 2011), the max is $5,550. With the new legislation, they will max out at $5,975 by 2017. Some lawmakers hoped for a cap of $6,900, but were shot down.
Of course, as is the norm for a profit over people system, the measure was aggressively lobbied against by private student lenders, banks, and other financial institution. It strips away the middleman from the student loan process, potentially saving the government, and thus taxpayers, significant amounts of money.
Student Loans and Bankruptcy
The reason for the private lender’s shark-like behavior is because the legislation not only impacts Pell Grants lessening the need for student loans, but also softens the impact on lower income Americans. The Legislation it easier for those in lower income jobs to pay back their student loans. With the huge loans that are accrued by some, talented students are less likely to choose low-paying positions, such as teaching when they be the best fit in that work environment.
Current law caps monthly payments at 15 percent of low-paid workers’ incomes; the new law will lower the cap to 10 percent. Student loans that are not backed by the government can still be made by private lenders. However, the change will be a significant loss to the industry. Estimates are that student loans are a $70 billion business.
Many students go to school with the best intentions and student loan lenders force them to sideline their dreams in order to basically work for them. This neo indentured servitude get less fair as the loans move down the socioeconomic scale. Many who leave their poverty stricken neighborhood with the most gallant intention of returning to help their neighbors do not return out of necessity to their own economic survival.
This does not need to be the case. If you or someone you know are drowning under a sea of debt due to credit cards and student loans after graduation there may be a way to get relief and begin a life where you can fulfill your professional intentions. Call Phillips Webster for a consultation on you bankruptcy options.
Learn More About:
