We often hear that student loans cannot be discharged in bankruptcy—don’t even try. But in fact, quite a few people have gotten relief from their student loans in the bankruptcy courts. And a few student-loan debtors have gone to bankruptcy court without lawyers and been successful.
But if you go to bankruptcy court to shed your student loans, you should bring a good attorney because the Department of Education or one of its agents will be there to meet you, and DOE and its proxies have battalions of skilled lawyers who will fight you every step of the way.
The Sad Case of Ronald Joe Johnson v. U.S. Department of Education
Johnson v. U.S. Department of Education, decided in 2015, illustrates why student-loan debtors should have good lawyer to represent them in the bankruptcy courts. In that case, Judge Tamara Mitchell, an Alabama bankruptcy judge, refused to discharge Ronald Joe Johnson’s student loans even though he and his wife were living on the edge of poverty. If Mr. Johnson had been represented by a competent attorney, I think he might have won his case.
In 2015, Johnson of filed an adversary proceeding in an Alabama bankruptcy court, seeking to have his student loans discharged. The U.S. Department of Education opposed a discharge (as it almost always does), and a lawyer from the U.S. Attorney’s Office in Birmingham, Alabama showed up to represent DOE and make sure Johnson lost his case.
Johnson had taken out student loans in the 1990s to enroll in some sort of postsecondary program, which Judge Mitchell did not bother to describe in her opinion. Johnson testified that he had enrolled for four semesters but had only completed one of them, He testified further hat his studies had not benefited him at all.
In 2000, Johnson obtained a Direct Consolidation Loan in the amount of about $25,000, with interest accruing at 8.25 percent per year. Although he paid approximately $10,000 on the loan, mostly through wage garnishments and tax offsets, he hadn’t reduced the principal by even one dollar. In fact, when Johnson appeared in bankruptcy court in 2015, his debt had grown to over $41,000.
Mr. Johnson desperately needed relief from his student loans. He testified at trial that he made about $2,000 a month working at two jobs; he was a municipal employee and also an employee at a local Walmart. His wife suffered from diabetes, which required expenditures for insulin and other supplies; and of course some of his income had been garnished by the government.
Unfortunately for Mr. Johnson, he signed a formal stipulation of facts that a DOE lawyer had cunningly prepared. In that stipulation, Johnson affirmed that it would not be an “undue hardship” for him to repay his student loans.
Although Mr. Johnson did not know it at the time, he lost his adversary proceeding the instant he signed his name to DOE’s prepared stipulation. Debtors cannot discharge their student loans in bankruptcy unless they can show undue hardship; and Mr. Johnson admitted in writing that paying back his loans would not be an undue hardship.
If Ronald Joe Johnson had been represented by a lawyer, he would never have signed that document. Moreover, a lawyer would have told him to bring evidence to court documenting his wife’s medical expenses.
In short, Johnson was a sitting duck when he walked into Judge Mitchell’s bankruptcy court without legal counsel. Judge Mitchell noted that he admitted that his loans did not present an undue hardship and that he had not brought any evidence of the expenses he had incurred to treat his wife’s diabetes.
And then Judge Mitchell walked Johnson through the the three-pronged Brunner test and concluded that he failed all three prongs. He was able to pay back his loans and maintain a minimal standard of living, Judge Mitchell ruled; and he had not shown any additional circumstances indicating he could not pay back the loans in the future.
Finally, Judge Mitchell ruled that Johnson failed the good faith test because he had made virtually no loan payments other than payments made through income-tax offsets and wage garnishments.
Mr. Johnson had gone to court to argue reasonably that he believed he had paid down his loans through income-tax offsets and wage garnishments. All he asked for was relief from the interest and penalties that had been added to his debt.
But Johnson’s arguments fell on deaf ears. He and his wife are stuck with a debt that grows larger every day that they will never be able to pay off.
Why can’t student debtors find good lawyers?
Why can’t people like Ronald Joe Johnson find good lawyers to represent them in bankruptcy court There are at least three reasons:
First, lawyers are expensive, and people who go to bankruptcy court don’t have money to hire a good lawyer.
Second, bankruptcy lawyers are not keeping up with recent trends in the bankruptcy courts and many believe–incorrectly–that it is impossible to discharge student loans in bankruptcy. Thus, even if Mr. Johnson had had money to pay a lawyer, a bankruptcy attorney might have told him that it would be pointless to try to shed his student loans in bankruptcy.
Third, legal aid clinics and poverty law centers, which should be representing people like Mr. Johnson, aren’t interested in the student-loan crisis. They would prefer to provide pro bono legal services in landlord-tenant disputes or fight courthouse battles over traditional civil rights issues.
In fact, I called the Southern Poverty Law Center, which maintains an office in Alabama, and asked if the Center would help desperate student-loan debtors. I was told the SPLC does not do that kind of work.
Distressed student-loan debtors need legal representation in the bankruptcy courts, but they are not likely to get it. Nevertheless, some bankruptcy judges have begun issuing sensible, compassionate, and well-reasoned decisions on behalf of people like Ronald Joe Johnson. Unfortunately for Mr. Johnson, Judge Tamara Mitchell is not a a compassionate bankruptcy judge. – Source
Johnson v. U.S. Department of Education, 541 B.R. 750 (N.D. Ala. 2015).