The Fifth Circuit Finds a Way to Make It Even Harder to Discharge Student Loans in Bankruptcy

On Tuesday, the United States Court of Appeals for the Fifth Circuit released an opinion that, if anything, makes it even more difficult to discharge student loans in bankruptcy. Writing for a three-judge panel in a case called In re Thomas, Judge Edith Jones reaffirmed the court's commitment to the existing case law and added yet another judicial gloss to the words of the statute. The opinion was a missed opportunity to return to a reasonable standard that allows debtors to discharge student debt in appropriate cases while still protecting the public fisc.

The debtor was over 60 years old, part of the trend of older filers in bankruptcy court. She had taken out $7,000 in student loans for two semesters of community college. Within a year after leaving community college, the debtor developed diabetic neuropathy, which left her unable to work at any job that required standing for any period of time. The debtor had to leave a retail job, a restaurant job, and a job at UPS. She lost a previous job at a call center after it was acquired by another company who then fired her within three months for wearing headphone and listening to music during her lunch break, a determination that probably not so coincidentally meant the debt was ineligible for unemployment insurance.

Consumer Bankruptcy Reform ... and American Xenophobia?

I hope I'm not stepping on Bob's toes in announcing the public release of the long-awaited report of the ABI Commission on Consumer Bankruptcy. The Commission, with Credit Slips' own inimitable Bob Lawless as its reporter, was formed in December 2016 to explore revisions to the US consumer bankruptcy system that would improve the operation of its existing structure; that is, evolution, not revolution. With this explicitly limited charge, one would not necessarily expect to find much high-level discussion of how the US approach squares with or fits within the many recent global developments in consumer insolvency relief, and one would expect to see a concentration on local solutions for local stumbling blocks.

That being said ... and in no way to detract from the monumental amount and truly impressive nature of the work the Commission has done here ... one might have expected to see a bit of discussion, if not even a touch of inspiration, from comparative sources. In 1970, the Bankruptcy Commission rejected any consideration of foreign developments in consumer bankruptcy, in part because there were few such developments, and in part because so little was known about the operation of non-US bankruptcy law at the time (for those younger than I, note that neither home computers nor the public Internet existed in 1970 ...). Nearly 50 years later, we now have at our fingertips a mountain of comparative data and analysis on the development, operation, and revision of consumer insolvency systems around the world, much of it reported in English specifically to make it widely available to law reformers like the ABI Commission. Again, one would not have expected this comparative material to occupy center stage in a reform of largely US problems in the uniquely US consumer bankruptcy system. But in a bit part here and there, some comparative observations might have supported the Commission's already compelling recommendations.

ABI Consumer Commission Report Is Nearly Finished

For the past two years, the American Bankruptcy Institute's Commission on Consumer Bankruptcy has been hard at work. As the Commission's reporter, I am very happy to say that the work is nearly finished. All of the drafting is completed, and we are in the final stages of the editing process.

The report will be released on April 11. If you want to learn about the report, come to the ABI's Annual Spring Meeting where there will be a number of sessions about the report.

The Commission's charge was to recommend "improvements to the consumer bankruptcy system that can be implemented within its existing structure." The recommendations represent the work of a broad group of bankruptcy professionals across all types of roles and types of practice. The report will have forty-nine sections across five chapters, with multiple recommendations in many of the sections. Although the substance of the recommendations will not be released until April 11, the topic list is public. You can expect recommendations on student loans, attorney compensation, the means test, rights in repossessed collateral, chapter 13 plans as well as many other topics.

Student Loans and Other Doings for the ABI Consumer Bankruptcy Commission

The American Bankruptcy Institute's Commission on Consumer Bankruptcy has been hard at work (Full disclosure: I am the Commission's reporter.) Yesterday, the Commission submitted written comments to the Department of Education's request for information (RFI) on the "undue hardship" standard for the discharge of student loans in bankruptcy. As the Commissions make clear in the cover letter, our comments respond to the RFI and thus focus on what can be accomplished at the regulatory level. Recommendations for statutory change will appear in our final report. Indeed, we had intended to release only the complete set of recommendations at the end of our work, but given the Department of Education's RFI, the Commission voted to release its recommendations that were responsive.

The Commission's recommendations fall into two broad categories. First, the Commission advocates for the adoption of bright-line rules that will identify persons for whom repayment of student loans will be an undue hardship, such as an existing governmental determination of disability or income below 150% of the federal poverty line. Second, the Commission made a number of recommendations around the judicially crafted Brunner test that courts use to determine undue hardship. You can read the full set of recommendations from the link above.

Update on ABI Consumer Bankruptcy Commission

This afternoon, I am off to New Orleans and the annual meeting for the National Association of Bankruptcy Trustees (NABT).  Tomorrow (September 15) from 12:30 - 2:30 PM, we are holding a public meeting for the Committee on Chapter 7 of the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you are at the NABT meeting, come and listen to our full schedule of fourteen speakers. The room location should be in the program and will be in the public meeting space for the conference.

If you would like to speak to us, there will be another opportunity for persons attending the National Conference of Bankruptcy Judges (NCBJ) in Las Vegas. The Committee on Case Administration & the Estate will be holding a public meeting at NCBJ on the morning of October 10. More information about requesting a time to speak is available at the call for participation. There also will be public meetings for the full Commission at the ABI's Wedoff Consumer Bankruptcy Conference to be held in November in Chicago, Illinois, and the Winter Leadership Conference to be held in December in Palm Springs, California.

Of course, you don't have to come to a meeting to send us your suggestions and comments. Anyone can send an email to ConsumerCommission@abiworld.og. I route all of those emails directly to the persons working on the issues raised as well as make them available to everyone involved with the Commission. Now is a particularly good time to write us as the committees are working on preliminary drafts. The topics the Commission is addressing are also available on our web site.

Come Talk to the ABI Consumer Bankruptcy Commission at NABT

As careful Credit Slips readers will remember, I was inflicted on the American Bankruptcy Institute's Commission on Consumer Bankruptcy as the Commission's reporter. Things are off to a roaring start. Taking the suggestions of many different stakeholders in the consumer bankruptcy system, the Commission has developed a list of topics and assigned them to different committees. In turn, the committees have broken down into working groups to study the issues.

The Commission and its committees already have had two successful public meetings, hearing from persons at the annual meeting for the National Association of Consumer Bankruptcy Attorneys (NACBA) in Orlando, Florida, and from persons at the annual seminar for the National Association of Chapter 13 Trustees (NACTT) in Seattle, Washington. The Commission web site has videos and, where available, written statements from both the NACBA meeting and the NACTT meeting.

The next public meeting is for the Commission's Committee on Chapter 7, which will occur on September 15 at the annual meeting for the National Association of Bankruptcy Trustees in New Orleans, Louisiana. Come talk to us. Subject to time availability, we hope to allow participants to make statements of about five minutes each. Written statements are very welcome and encouraged. Further details appear in the call for participation on the Commission web site. For full consideration, requests to participate must be received by September 6.

How to Get Involved with the ABI Consumer Commission

As Jason Kilborn noted last month, the American Bankruptcy Institute (ABI) has formed a Commission on Consumer Bankruptcy. More information about the Commission is available on its web site including the unfortunate news that it got saddled with me as the reporter. We very much invite input and suggestions about the Commission's work. Right now is an especially good time to get involved as the Commission sets its agenda.

The ABI has charged the Commission with "researching and recommending improvements to the consumer bankruptcy system that can be implemented within its existing structure. These changes might include amendments to the Bankruptcy Code, changes to the Federal Rules of Bankruptcy Procedure, administrative rules or actions, recommendations on proper interpretations of existing law and other best practices that judges, trustees and lawyers can implement."