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Judge’s Refusal to Stay Cancer Patient’s Case Highlights Need for Biden Administration to Fix Bankruptcy Policies

June 7, 2022 

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Judge’s Refusal to Stay Cancer Patient’s Case Highlights Need for Biden Administration to Fix Bankruptcy Policies

Student Defense is again urging the Department of Education and Department of Justice to revise their guidance on handling student loan bankruptcy cases. The renewed call for action comes after a federal judge declined to stay bankruptcy proceedings in the case of Heather Smart, a student loan borrower battling cancer who saw the Department of Education oppose a discharge of her student loan debt.

“Student and consumer advocates, legal experts, Republican and Democratic lawmakers, the Department, and President Biden all agree that the process is broken for student loan borrowers in bankruptcy,” Student Defense Vice President and Chief Counsel Dan Zibel. “Yet, time after time, we continue to see the government erecting barriers that make it harder for bankrupt borrowers seeking a discharge of their student loans. Although the Department of Education has publicly acknowledged the problems, to date, we have seen little in terms of concrete policy changes, and borrowers facing extreme hardship are paying the price. Enough is enough.”

Although the Bankruptcy Court agreed to delay the trial date in Ms. Smart’s case, the ongoing legal machinations highlight the need for the Biden Administration to quickly issue clear, consistent new guidance on its bankruptcy policies and to stop opposing borrowers in court until it has.

Last fall, Office of Federal Student Aid Chief Operating Officer Richard Cordray told a House education subcommittee that his office was in talks with the Department of Justice to develop new guidance on adversary proceedings and admitted the flawed process was in need of reform. Neither agency has released any new guidance regarding the handling of these claims. And in recent weeks, the Department has continued to oppose borrowers seeking much-needed relief. For example:

  • On April 29, 2022, the Department opposed a request for a discharge and denied that “the right to an adequate standard of living requires, at a minimum, that everyone shall enjoy the necessary subsistence rights: adequate food and nutrition, clothing, housing, and the necessary conditions of care when required.” In so doing, the Department acknowledged and recognized that this language came from the milestone Universal Declaration of Human Rights, but nevertheless denied the assertion.
  • On April 20, 2022, the Department filed an opposition to a bankruptcy request submitted by a federal postal worker, who has recently faced multiple surgeries, used all of his accrued leave, and has been unable to return to work. According to court filings, the borrower will need additional surgeries, continuing his inability to return to work. Meanwhile, the borrower’s wife – who is also seeking a discharge of her student debt through bankruptcy – has been forced to undergo weekly blood plasma donations in order to supplement their income.

Student Defense previously raised concerns that the federal government was actively fighting bankrupt borrowers in court. Earlier this year, Student Defense joined 15 other student rights and consumer advocacy groups in sending a letter to Education Secretary Miguel Cardona calling on the Department to stop automatically opposing borrowers in bankruptcy proceedings and to review all discharge oppositions taken under the current administration to ensure students received a just outcome. And in July 2021, Student Defense joined with Professor Pamela Foohey to author a paper in the Minnesota Law Review detailing steps the Department of Education could take, under existing law, to change the administrative framework for borrowers in bankruptcy.