Score One for David Sirota

There is a bankruptcy case in Delaware where a 35 year old epileptic man was granted relief from his student loan debts.

The Biden administration appealed, but following a story on the Daily Poster that went viral, they reversed themselves and will not contest the bankruptcy.

It appears that the former this administration can be shamed into doing the right thing, which is a marked change from the past few administrations:

The Biden administration is abruptly withdrawing its attempt to block a major court ruling that could protect student borrowers, according to a new statement provided to The Daily Poster. The announcement comes 48 hours after The Daily Poster broke the news that the administration had moved to appeal the ruling, which could help the poorest borrowers who are being bankrupted by e

ducation debt.

“This January 28 notice of appeal will soon be withdrawn,” a Department of Education spokesman said in the statement. “The Department of Education has indicated publicly that it is reviewing current bankruptcy policies, a process which remains ongoing. While the student loan payment pause remains in effect, any borrower in an adversary bankruptcy proceeding can request and receive a stay on their proceedings.”

Following the statement to The Daily Poster, Under Secretary of Education James Kvaal tweeted Friday morning: “We will withdraw the appeal in the Wolfson bankruptcy case & review how we handle future claims.”

The standard that they were trying to preserve was to put an incredibly high bar on bankruptcy claims for student debt. From the story that went viral:

Despite increasing pressure to fulfill a campaign promise to forgive student debt, President Joe Biden is now going in the opposite direction: His administration has taken an initial step to try to overturn a key legal victory for borrowers, according to court filings reviewed by The Daily Poster.

If the administration wins an appeal, it could bolster a legal precedent against millions of debtors being crushed by bankruptcy laws that Biden infamously helped his finance industry donors sculpt during his four decades in Washington.

On January 14, a federal judge in Biden’s home state of Delaware moved to eliminate nearly $100,000 in student loan debt held by a 35-year-old epileptic man. In response, the Justice Department filed a notice of appeal in the case on behalf of Education Secretary Miguel Cardona.

………

The legal maneuver comes more than six years after the Obama administration called on Congress to make it easier for some borrowers to discharge their student loans through bankruptcy.

Over the last four decades, Biden has led the fight against initiatives to reduce student debt. As a senator from Delaware, Biden sculpted the laws that have made it so difficult for Americans to reduce their student debts in bankruptcy court.

………

In the Delaware case, a bankruptcy judge found that Ryan Wolfson, who held nearly $100,000 in student loan debt, faced “undue hardship” due to the debt and eliminated all of it. According to the lawsuit, Wolfson graduated from Penn State in 2010 and struggled to find full-time employment. In 2019, while Wolfson was working full-time driving for Uber, Lyft, and Grubhub, he suffered a seizure while driving and totaled his vehicle.

“The evidence shows that, despite considerable effort, Wolfson has been chronically un- or underemployed since graduating from college; that his sporadic full-time employment has consisted of low-paying gig work or jobs with little prospect of advancement; and that he has avoided living in abject poverty only through significant financial support from his father,” the judge wrote in her opinion. “The record further shows that Wolfson’s career prospects are unlikely to materially improve over time, and thus, his inability to pay his student loan debt will persist.”

Not only did the court discharge Wolfson’s debt, but the judge’s decision also departed from other bankruptcy courts which have been hesitant to find “undue hardship” in cases related to student loans, and have rarely ruled in favor of the debtors.

………

Student debt is typically exempt from bankruptcy cases unless borrowers can prove that they face “undue hardship” as a result of their debt, a higher standard than almost all other types of consumer debt. Federal circuit courts have interpreted this language in different cases to demand that debtors show a “certainty of hopelessness” or “intolerable difficulties” or “a total incapacity to repay.”

Basically, the earlier rulings are demanding a near complete and permanent disability, which is almost impossible to establish

That higher standard is in part thanks to Biden himself, who as a senator spearheaded a law in 2005 that made it more difficult for student debtors to claim bankruptcy for private loans. About half of Wolfson’s debt was held by a private loan provider, and half by the federal government.

When those like Wolfson file for bankruptcy, they must undergo a separate process to address their student debt, known as an adversary proceeding. In an adversary proceeding, debtors must sue their student loan lenders and prove they face “undue hardship” as a result of the loans. In this case, the creditors are the federal government and Educational Credit Management Corp., a private loan collection service that has long been “the main private entity hired by the Department of Education to fight student debtors who file for bankruptcy on federal loans,” according to the New York Times.

………

Meanwhile, a bipartisan coalition of senators has been working to reform bankruptcy laws in a way that would be favorable to student debtors. Reforming these laws has been a longtime crusade of Sen. Elizabeth Warren (D-Mass.), who has been a staunch critic of Biden’s support for legislation that made it more difficult for debtors to triumph in bankruptcy proceedings.

Warren previously attributed Biden’s support for those laws to his coziness with the financial industry.

“His energetic work on behalf of the credit card companies has earned him the affection of the banking industry and protected him from any well-funded challengers for his Senate seat,” she wrote of Biden in 2002.

Yes, the Senator from Mastercard.

Old habits die hard.

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