%1

Mark Tetzlaff has spent three years battling lawyers for the Department of Education over the right to have his student loans canceled in bankruptcy. On Thursday, he appealed his case to the Supreme Court, and if the nation's highest court takes the case on, it will be one of the rare occasions when it has addressed the $1.3 trillion pile of student debt held by 41 million Americans, Bloomberg News reported yesterday. Douglas Hallward-Driemeier and his team, Tetzlaff’s legal counsel, have asked the court to clarify 1970s-era rules that prevent borrowers from getting rid of education debt in bankruptcy, except in cases in which repaying it would constitute an “undue hardship.” Lawmakers never fully defined "undue hardship," leaving it to the courts to define these special, and rare, circumstances in individual cases. Tetzlaff has said that the standard being applied to his case is unconstitutional. Read more. 

For more on student loans in bankruptcy, be sure to pick up a copy of ABI’s Graduating with Debt: Student Loans under the Bankruptcy Code. 

In recognition of BAPCPA’s 10th anniversary, ABI’s Ed Flynn is providing a short analysis each day this week looking at the impact of the law on bankruptcy filings and practice. Today’s article explores the surge in case filings that occurred prior to BAPCPA’s effective date. Click here to read the full article.

It is reasonable to ask, 10 years since the implementation of the Bankruptcy Abuse Reform and Consumer Protection Act, whether the reform law achieved its goals, according to an American Banker commentary today by John McMickle, a former counsel to the Senate Judiciary Committee who helped to draft the legislation. McMickle believes that the law has worked well, though not perfectly. As intended, the number of bankruptcy filings has declined dramatically since 2005, from almost 1.7 million to 920,000 in 2104, according to McMickle. He thinks that the "means test" — which measures a prospective bankruptcy filer's ability to pay and channels those with higher incomes into repayment plans — has worked well. “Despite criticism, the ‘means test’ assures repayment but permits the truly distressed to avoid hardship,” McMickle writes. Read the commentary.

For additional expert perspectives of business and consumer bankruptcy trends on the 10th anniversary of BAPCPA, be sure to watch ABI’s media webinars, “BAPCPA at 10.”

The Department of Education intervened on Tuesday in the case of Robert Murphy, an unemployed 65-year-old who has waged a three-year legal battle to erase his student loans in bankruptcy, Bloomberg News reported yesterday. A win for Murphy would relieve him of $246,500 in debt and could loosen the standard used to determine how desperate someone needs to be to qualify for relief. The court asked the Education Department to weigh in on the matter. In a document submitted to the court on Tuesday, government lawyers urged the federal judges not to cede any ground to borrowers who say they are in dire financial straits. Doing so would imperil “the fiscal stability of the loan program” that has existed for half a century. “That is part of the bargain that parents strike when they take out loans later in their work life,” the lawyers added. Murphy took out several loans to send his three children to college, but he lost his job at a manufacturing company in 2002 and has not been able to find work since. No student debtor should get a break on student loans unless they can show a “certainty of hopelessness,” said the government’s lawyers. “[A] debtor must specifically prove a total incapacity in the future to repay the debt for reasons not within his control,” they added. The lawyers said that the point of keeping such a stringent standard is to ensure “that bankruptcy does not become a convenient and expedient means of extinguishing student loan debt.” Read more. 

To read further analysis of student loans in bankruptcy, be sure to pick up a copy of ABI’s Graduating with Debt: Student Loans under the Bankruptcy Code.