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An appeals court has sided with borrowers who sought to discharge private student loans after filing for bankruptcy, a win for consumers trying to cancel their shares of roughly $50 billion in private educational debt, WSJ Pro Bankruptcy reported. Monday’s ruling by the U.S. Court of Appeals for the Tenth Circuit centers on a couple, Byron and Laura McDaniel, who sought chapter 13 bankruptcy relief in Denver for debts including about $200,000 of student loans owed to private lender Navient Solutions LLC. Unlike other types of personal debt, most types of student loans are nearly impossible to discharge even in bankruptcy, including government-backed loans. But the appellate court said the type of private loan issued by Navient — which didn’t meet the Tax Code’s definition of a qualified student loan — doesn’t enjoy the same protections against cancellation. The McDaniels’ debts can be discharged without the borrowers showing “undue hardship,” the high bar that must be cleared before bankruptcy courts will forgive most types of student loans, according to the ruling. The ruling rejected Navient’s claim that the McDaniels’ roughly $200,000 in student loans constituted “an obligation to repay funds received as an educational benefit,” a designation that would have protected the debt from being wiped out in bankruptcy. Pamela Foohey, a professor at Indiana University’s Maurer School of Law, said the decision represents one way that courts “can chip away at the lore that all student loans are effectively not dischargeable.” The ruling applies to borrowers of private student loans that aren’t deemed “qualified” under Internal Revenue Service regulations. To be qualified, student loans must be issued to borrowers who attend certain accredited schools, must not exceed the cost of attendance and cannot be for students taking less than six credits a semester.

COVID-19’s economic impacts, from job losses to business closures and relief measures, have disproportionately affected Black Americans as much as the virus itself. And if history is any guide, even the lifeline of bankruptcy may be ill-equipped to give most pandemic-ravaged Black debtors a fresh start, according to a Bloomberg Law analysis. Dozens of academic studies over more than three decades have concluded that Black debtors file for bankruptcy disproportionately more than other racial groups, yet get less permanent relief. A 2017 analysis — co-authored by now-U.S. Rep. Katie Porter (D-Calif.) — found Black filers half as likely as other groups to permanently eliminate their debts, no matter which type of personal bankruptcy case they filed. Now, pandemic-fueled disparate impacts threaten to make relief even more difficult. Although personal filings haven’t spiked, and in fact have dropped since the pandemic began, attorneys expect the reprieve to last only as long as government help. The Black jobless rate was stuck at 14.6 percent in July, despite declining for all other groups and dropping to 10.2 percent overall. Studies have found that the majority of Black Americans seeking personal bankruptcy have chosen to restructure their debts under chapter 13, rather liquidate under chapter 7, even though the latter is used more than twice as often overall. “When you look at the national figures, there’s no question that something is going on,” said John Rao, an attorney at the National Consumer Law Center. “African Americans who have fewer assets and lower income are filing chapter 13s at a higher rate than whites, and that doesn’t make sense.” The Final Report of the American Bankruptcy Institute’s Commission on Consumer Bankruptcy, which devoted a chapter to racial justice in bankruptcy, recommended that Congress authorize collection of race and ethnicity information as part of the petition process.

A new survey released today by Gallup and West Health found that nearly half of Americans in the COVID-19 era fear a health-related incident could drive them into bankruptcy, UPI.com reported. Gallup and West Health said 50 percent of respondents said they're concerned about medical bankruptcy -- a 5 percent increase from early this year, before the pandemic. That concern rose 12 points among U.S. adults between 18 and 29 and non-White Americans. The study found that 15 percent of respondents said at least one person in their home currently has medical debt that will not be repaid in the next 12 months. "Those in households earning less than $40,000 per year are more than four times as likely as those in households earning $100,000 or more to be carrying long-term medical debt (28% vs. 6%, respectively)," Gallup added.