PROGRAM SUMMARY 2-24-24
By: Gary Wallace-Program Summary Committee Chair

CDCBAA Holds Second Meeting and MCLE Program of 2024: "EXAMINING STUDENT LOAN DISCHARGE: NUTS AND BOLTS OVERVIEW & TRAINING ON DOJ GUIDANCE”

            On February 24, 2024, the CDCBAA held its second members meeting and MCLE program of the year.  The meeting and program were conducted as a live webinar via Zoom video.  The program topic was: "EXAMINING STUDENT LOAN DISCHARGE: NUTS AND BOLTS OVERVIEW & TRAINING ON DOJ GUIDANCE.”  The distinguished panel included Hon. Vincent Zurzolo | Judge, Central District of California, Los Angeles Division; Elan Levey, Esq. | Assistant United States Attorney, United States Attorney's Office - Central District of California; John Rao | National Consumer Law Center; Raychelle Tasher, Esq. | Assistant United States Attorney, United States Attorney's Office - Southern District of Florida; Hon. Magdalena Reyes Bordeaux | Judge, Central District of California, Riverside Division | Moderator.  CDCBAA president and current board member, Hale Andrew Antico, Esq., also moderated. What follows are some of the highlights of the seminar.

            Mr. Rao began by stating that, today, Americans owe more than $1.76 trillion in student loan debt. A 2020 ABA survey on student loan debt found that it has caused new lawyers to postpone major life milestones: For example, 48% of respondents have postponed or decided not to have children, 29% have postponed or decided not to get married, and 56% have postponed or decided not to buy a house. Before 1976, student loan debt could be discharged like other unsecured debt. However, in 1976 Congress amended the Higher Education Act. Under the newly enacted section 523(a)(8): Discharge of student loans became automatic if loans were more than five (5) years old; for loans less than (5) years old, the debtor needed to demonstrate undue hardship. Section 523(a)(8) was thereafter amended several times, culminating in the 2005 amendment that now extends the undue hardship test to apply to private student loans.

            Since the term “undue hardship” was not defined in the Bankruptcy Code, courts tried to define it by implementing various tests. Under the “Brunner test,” a debtor can demonstrate undue hardship by establishing the following: 1) the debtor cannot, based on current income and expenses, maintain a “minimal” standard of living for himself or herself and his or her dependents if forced to repay the loans; 2) this state of affairs is likely to persist for significant portion of student loan repayment period; and 3) the debtor has made good faith efforts to repay the loans. See Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). The Brunner test is utilized by most circuits—including the Ninth Circuit—except for First and Eighth Circuits, which apply a “totality of the circumstances” test. The recent trend in the Ninth Circuit may be to apply Brunner less rigidly. See, e.g.,   Love v. U.S. Dep’t of Educ. (In re Love), 649 B.R. 556, 562-69 (Bankr. E.D. Cal. 2023)(granting a discharge to a debtor of her student loans).

            Ms. Tasher then discussed the recent Department of Justice Guidance on the issue of student loan discharge. The DOJ Guidance, which became effective on November 17, 2022, essentially encourages the government and debtors to stipulate to certain facts in student loan proceedings in an effort to streamline and make the process more consistent for all debtors. The stated goals of DOJ Guidance are to provide clarity, transparency and consistency; to set clear, transparent, and consistent expectations for discharge that debtors understand; to reduce the burden and simplify the process; and to reduce debtors’ burdens in adversary proceedings by simplifying the fact gathering process. DOJ Guidance applies only to adversary proceedings where the Department of Education (DOE) is a defendant and to holders of Perkins and FFELP loans, including Parent Plus Loans.

            The process itself involves the use of an attestation form along with supporting documentation that the debtor submits to DOJ for review. DOJ Guidance encourages use of IRS standards to assess “minimal standard of living,” but the debtor may request consideration for allowing amounts above National Standards. A presumption of inability to repay exists of 1) the debtor is 65 or older; 2) the debtor has a disability or injury impacting income potential; 3) the debtor has been unemployed for at least 5 of the last 10 years; 4) the debtor failed to obtain a degree for which a loan was obtained; and 5) the debtor’s loan has been in repayment status for 10 years. Following its review, DOJ then sends the attestation form to DOE with a recommendation, and DOE then determines if the evidence supports an undue hardship determination. If DOE makes an undue hardship determination, this recommendation is presented to the court. DOJ then files a stipulation and proposed order supporting undue hardship determination—if applicable. While the court is not bound by the stipulation and recommendation, the reality is that the court is likely to grant the discharge in such cases.

            Ms. Levey explained in further detail as to how the hardship discharge works in the Central District. An exemplar of the attestation form, which can be accessed on the DOJ website, was presented and its use discussed. Judges Bordeaux and Zurzolo offered valuable insight on additional points, such as service requirements, local rule interplay, and how supportive all of the Central District judges have been in helping to formulate and implement the current process.

            As usual, a very lengthy and detailed program outline containing summaries of the cases and forms was provided to all registered participants.

            The next CDCBAA members meeting and Zoom MCLE program will be held on April 20, 2024.  The topic will be “INTERSECTION OF TAXES AND BANKRUPTCY.”  Our speakers will be Najah Shariff | Assistant United States Attorney - Tax Division of United States Attorney's Office, Central District of California; and Steven Walker | Law Offices of Steven L. Walker.  Please Note: This CLE program will be held in person at the University of West Los Angeles Law School (Woodland Hills) and available as a WEBINAR via Zoom.

We hope you will join us.

 

Gary R. Wallace
Law Office of Gary R. Wallace
10801 National Boulevard, Suite 100
Los Angeles, CA 90064
Email: garyrwallace@ymail.com
Office: (310) 571-3511