Bankruptcy of Your Student Loans

Bankruptcy of Your Student Loans

Friday, November 13, 2015

A letter to the U.S. Department of Education

U.S. Department of Education
Office of Career, Technical, and Adult Education
400 Maryland Avenue SW
Washington, DC 20202-7100

RE: Request for Significant Documentation

Dear U.S. Department of Education,

The purpose of this letter is to request significant documentation and data from the U.S. Department of Education (Dept. of Ed.), for the explicit use in an adversary proceeding.

1)      It is my belief and contention that there has been a concerted effort by the Dept. of Ed. to reduce the number of defaulted student loan rates.
2)      It is my contention and belief that the efforts made to statistically show this reduction is being made and effectively enforced, is in fact a gross misrepresentation and misreading of the law, and an injustice to certain borrowers.

In my many hours of research into the subject of adversary proceedings and study of court cases of destitute and overburdened borrowers and debtors, there has appeared a consistent theme of aggressive behavior and strong-arm tactics by agents of the Dept. of Ed. and the Department itself, to be unrelenting and unwilling to allow remedies for destitute debtors.

These actions and tactics seem to have been engaged upon in an effort to appease and or satisfy certain directives of the Department of Education or directives and or inquires from the legislative bodies of the U.S. Congress and or Senate of the United States.  The nature of these acts has been found to be biased and unfair to a large segment of borrowers based on a number or studies and articles I have read, and it is clear, and nearly all writers agree, that the current enforcement system and even the latest repayment re-structuring methods are biased against destitute debtors.

It is safe to conclude then from what I have read, that major efforts have been made to establish restructuring of loan repayment such that these loans can be categorized so as not to be labeled or placed into a defaulted loan status. However it makes absolutely no economic sense to just say a loan is not in default.

For example, the use of the Income Contingent Repayment Plan (ICRP) is not a fit-all plan when the circumstances are such that a senior citizen living near the poverty level on SSDI or even on straight Social Security; who has, due to no fault of his or her own, been unable due to medical or financial problems, to pay off their student loans and whose loans went into default and are now owing to the U.S. Department of Education. 

In my case, I am 67 years old, and my last student loans were granted in 1995.  When I completed my degree programs, and graduated in 1996, I was unable to find employment in my field of study.  What I was told by educators about the opportunities for high pay and success were no more than a pipedream.  Several years later, I applied for and was awarded Social Security Disability Income.  My career hopes of using my graduate degree to earn a substantial living were not to be realized in my lifetime.

When I was employed I did make payments to the Loan Servicers, and I have those records of payments, to show I made a good faith effort.  As a college student, I was diligent in informing the Loan Services, and thus the lenders, of my status.  The Loan Services assisted me in granting deferments and forbearances, and worked with me in payment plans. In respect to that, I can say they performed well.  When however my circumstances became dire and I was unable to make loan repayments due to my medical conditions, the loans were consolidated and then turned over to collection agencies, which resulted in many thousands of dollars in penalties and other surcharges being added to the original loan balance.

Currently my monthly net income is $1,205.55.  My student loan is now approaching $130,000.00 and climbing each and every day.  The original loan amount was the total approximation of $55,000.00 back in 1996. My situation is not going to change.  I am living from month to month on $1,205.55. Each month my retirement income is “garnished” via a treasury offset forced upon me in a vain attempt to pay the interest on my defaulted student loan.  The garnished payments are applied only to the interest and in fact do not even come close to covering the ever increasing amortization taking place.

I have no money, no IRA’s, no portfolios, no stocks or bonds, and I have no insurance policies (not even a burial fund). I have no savings accounts, no real estate, no assets and no personal property other than a 16-year old rusted out pickup truck that is not drivable because the transmission has failed, and the clothes I wear.  I live with my daughter and her husband and pay only a small percentage towards the very expensive DC Metro area rent to my daughter.

In light of my circumstances I feel it necessary to consider the following facts in regard to the current plight and the efforts required to collect on this 26-year old defaulted loan:

v     The Department of Education has spent thousands of dollars maintaining my loan.
v     Attempts by the Department to collect and bring this loan current are not working.
v     Garnishing retirement annuities has not paid down any amount on this loan.
v     The Department “denied” 2014 TPD request for discharge due to total disability.
v     A second application for TPD consideration this past year was never answered!
v     Loan forgiveness programs are no more than re-financing scams and no help.

Therefore, I seek the following information and documentation:

A)    In order to prove my contentions listed at the beginning of this letter, I request:

1)     All directives, memorandums, emails, position papers, and strategy papers which are internal to the Dept. of Ed., regarding the efforts undertaken by the Dept. to demonstrate publicly or for internal use, to reduce or show a reduction regarding the default rates on student loans.

My understanding is that these efforts began in earnest in the year following 1976, when bankruptcy laws were changed and no longer allowed the discharge of student loans without exceptions.

In the past I have always been told that student loans are impossible to be discharged in a bankruptcy.  No one in the Department of Education or any of the Loan Servicing entities ever alluded to suggesting that there are exceptions and that bankruptcy discharge is possible.  They always said that bankruptcy was not allowed for student loan debt. Even bankruptcy attorneys have told me point blank “you cannot get rid of your student loans going through (a) bankruptcy”.  What I know today, that this is simply not true!

B)     In order to prove my beliefs that the Dept. of Ed. has consistently violated the
rights and understanding of debtors during an Adversary Proceeding, I request:

1)      All directives, memorandums, emails, and written Departmental policies which direct or authorize Department of Education employees and staffers to inform debtors that bankruptcy of student debt is not allowed or permitted.
2)      All directives, etc. that are used to train or inform Department of Education employees to inform and guide debtors into one of the repayment plans such as the ICR or the ICRP.
3)      I need Departmental Level documents which are specific to these listed above, and that fully answer these questions:
a.       Specifically, are there “goals” each employee must meet each month which show that students were enrolled in such repayment programs?
b.      Are employees “trained” to guide or enroll debtors into a repayment program and tell debtors that is the only option available to them?
c.       If a debtor asked about filing bankruptcy and or an adversary proceeding, what is the debtor told by employees of the Dept.?
d.      What letters are sent out to student debtors regarding repayment programs or filing bankruptcy to discharge student loan debt?
During my research I have discovered that there appears to be a concerted effort on the part of the Dept. of Ed. to deny honest debtors any relief through write-offs, forgiveness plans for long-term debtors, and or compromises (while credit card companies and other loan institutions have historically allowed this). While on the other hand, the courts have been used by all manner of debtors to file bankruptcy and have all manner of debts discharged and allow a “fresh start” to those who sought such relief from the courts.

C)    Research shows that there is much evidence to show that the Dept. of Ed. fails to follow the Debt Reduction Act and has a history of pursuing up to and even harassing student loan debtors, who are unable for reasonable cause, not able to resolve their debt issues to the satisfaction of the Department of Education.

D)    In order to prove my point here, I request documents from the past 4 years:
1)     Total number of recorded defaulted student loans.
2)     Total number of Chapter 7 (only) filings where student loans are listed.
3)     Total number of debtors who filed an “adversary proceeding” when seeking a Chapter 7 Bankruptcy through a U.S. District Court.
4)     Any memorandums on how the adversarial proceeding was resolved, e.g.
5)     Total number of adversary proceedings that favored the debtor.
6)     Total of  “Pre-trial settlements” between Dept. of Ed. and Plaintiff, with a description of the results of the settlement.
7)     Total of “Trial cases” and a written synopsis of the results of the trial.
8)     Any written reports that the Dept. of Ed. has in regards to the discharge of loans through an adversarial proceeding.
9)     Any internal reports, papers, memorandums, emails, analysis papers, office recommendations, policies and procedures, and guides made by the Dept. of Ed. legal department or staff that detail legal strategies regarding the use of an adversary proceeding by debtors to obtain discharge of student loan debt.
10) Any report indicating the total number of students who have debts that are more than 10 years old who are now living on government annuities or subsistence, and to whom the Dept. of Ed. continues to actively pursue payments of student loans.

The research I have done has also uncovered a trend by the Department of Education that is disturbing and needs to be addressed.  When reviewing many case outcomes of debtors who filed bankruptcy and then followed up with an adversary proceeding using U.S.C. 11 § 523 (a) (8) to prove “undue hardship”, I found that the Dept. of Ed. was very aggressive and in many cases, went to great lengths to provide an “assault based defense”.  The assault on some of the plaintiff’s included demeaning statements and accusations and even character assassination.  I discovered that the department of Education has even gone as far as to create a legal defense department that is specific to cause of defeating any debtor making their case of undue hardship.

The conclusion I came to was that these aggressive behaviors and actions on the part of the Department of Education violates the debtor’s ability to obtain a “fresh start” thus violating the intent and purpose of the United States Bankruptcy Code and laws pertaining to it’s enforcement. 

v     The Bankruptcy Code first and foremost speaks to the “fresh start” provision, in fact that provision takes precedent over U.S.C.A. 11§523 (a) (8).
v     The “fresh start” policy is designed to allow a person to resume or obtain a life with qualities associated with mainstream American ideals and freedoms.
v     Bankruptcy in America is intended to allow all debtors, including student loan debtors the right to live a lifestyle which approximates “American Middle Class”, not to force debtors to live in poverty until they die.
v     Neither Chapter 7 or Chapter 11 or any of the other Bankruptcy codes have the intent of forcing into poverty or leaving a debtor to live in a sub minimal state.

On the other hand looking at the history of student loan debtors there is a quite a large  disparage.  Research shows that student loan debtors are treated with a much harsher interpretation, and I have found that student loan debtors are unable to have debts discharged unless they are at or below the National Poverty Guidelines.

I do not believe, nor has a case been made, that demonstrates that there is a difference to be made between a debtor owing consumer debts which they are unable to pay , and student loan debts that the debtor has no way of resolving outside of a bankruptcy proceeding.

My contention from my research indicates the bankruptcy laws are intended to allow filers to have their debts discharged to allow the debtor to re-establish a life at a middle class or sub-middle class level standard and not at the poverty level.

Yet I found that the student loan debtor is judged using a different scale. In order for a holder of student loan debt to be granted a discharge in a bankruptcy, they must prove “undue hardship” as part of U.S.C. 11 §523 (a) (8) and use an adversary proceeding in order to “prove” a case for discharge.  This law is in effect and is the only recourse for student loan debt, and in fact was designed to specifically address student loan debt.

It arises then that I believe there is reason to suggest the Department of Education has adopted a stand that in order to determine what defines “undue hardship” that the Dept. of Ed. has elected to use the Federal Poverty Guidelines as a measuring stick. 

To my knowledge there is no written rationale to support this, although there may be some policy within the confines of the Dept. of Ed. that calls for this to be used to allow or disallow student loans to be discharged under the provision of “undue hardship”.

E)     Thus, in order to prove my point on the above, I request:
1)     Any and all internal Dept. of Ed. documents which indicate a policy to utilize the Federal Poverty Levels as a measure of determining and defending in court “undue hardship”
2)     All internal Dept. of Ed. documents, memorandums, policies, procedures, emails and program guidelines which are used to determine the social status or ability to pay of debtors.

The reasoning for requesting the above listed documents is that research of cases has led to making some observations regarding the outcomes of adversary proceedings by debtors of certain social and economic classes. Those include not only those who fall into the poverty spectrum, but also racial minorities, single people, women, the well-educated, those living above the poverty level and other classes and minorities. This would include the distinction of debtor based on age, and medical and physical condition. I believe I am in one or more of these minority classes of debtors.

F)     In this regard, I need more information to prove my point, I request:
1)     All copies of reports, studies, memorandums, policy and procedures, emails, or analysis or written findings which show that the department of Education is aware of discriminatory practices in regards to students based on social or economic class or ability to pay.
2)     All documents internal to the Dept. of Ed. that detail procedures or provide guidelines to attorneys or the legal department within the Dept. of Ed. addressing or outlining a defense strategy to argue against the plaintiff when there is an adversary proceeding filed using the “undue hardship” rule of law.
3)     The above is to include any and all internal documents that are used to interpret statute U.S.C. 11 §523 (a) (8)  by internal legal defense or via external defense lawyers under retainer by the U.S. Department of Education.

Research has also discovered that there are large differences between the U.S. Bankruptcy Courts in how they interpret and rule on undue hardship.  When the Congress revised the bankruptcy Code to amend and redefine U.S.C. 11 §523 (a) (8), they did not define “undue hardship”. Rather, they left it up to the court and perhaps more specifically Judges within individual districts to interpret this phrase.

What appears to have developed since the original law was revised to exclude student loans from bankruptcy has been that courts have been forced to develop and implement certain “tests” to determine what undue hardship is when the “exception rule” and the “unless” of 11 §523 (a) (8) is pursued by the debtor filing a Chapter 7 or 13 personal bankruptcy.

It appears then that two major “tests” to determine “undue hardship” have come to be the norm in U.S. Bankruptcy Courts across the nation. One such test has been accredited to the 8th District Court and has become known as the “Totality of Circumstances”. 
The totality of circumstances appears to consider three determinants about the debtor: 1) the debtor’s past, present and reliable future financial resources, 2) the debtor’s reasonable and necessary living expenses, and 3) other relevant facts and circumstances.  This test is used in at least nine of the U.S. Districts.

The 2nd test is named the “Brunner Test” The Brunner test also considers three major areas to determine “validity of undue hardship”  These are called “the 3 Prongs” . The first prong requires a demonstration that the debtor cannot maintain a minimal standard of living (and that is another term which is not easily definable).  The second “prong” looks at additional circumstances and the inability of the debtor being able to repay the loans in the future. The  third prong in Brunner looks at whether the debtor has made a good faith effort in regards to paying the loans. An unknown number of courts have adopted the Brunner Test,, and some are known to consider other measures to determine what “undue hardship” is determined on a case-by-case basis.

In conclusion, I am of the opinion that since Congress failed to provide a clear definition of  “undue hardship” in the statute 11 U.S.C. §523 (a) (8), that somewhere the Dept. of Ed. has an interpretation they rely upon.  Therefore it is also my opinion that the Department of Education must have within their policies and procedures and legal departments written documentation and directives on how to defend against this clause.

That is why I will reiterate the request made above to receive a copy of all documentation regarding the defense of 11 U.S.C. §523 (a) (8) as follows:
“(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for— (A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;”

I am making these requests for all of the aforementioned documents in order to prove my points regarding the practices and policies and procedures of the U.S. Department of Education in regards to the ability of said debtor to find remedy for his financial situation.

My requests are simple and they have been well articulated.  I believe that this information will help in determining the correct course of action to remedy the issue at hand.  Therefore, with all due respect I look forward to receiving these documents in a timely manner. Please address all correspondence and mail all requested documents to the return address of this letter.

Thank you,

Poverty Bound Student Debtor

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