Judge Monroe Tells It Like It Is: BAPCPA Is a Fiasco Because Congress Sold Out Individual Consumers to Special Interest Groups

Remember back in October 2005, in the week before BAPCPA became effective, when about 500,000 Americans from every race, color, and creed decided they'd be better off filing bankruptcy than risking the possibility they'd have to enter BAPCPA's inferno at some later time? Back then I wrote here that "BARF" (Bankruptcy Abuse Reform Fiasco) was rapidly becoming the preferred acronym for the new bankruptcy legislation among many bankruptcy professionals.

Since then, as reported here, here, and here, exasperated bankruptcy judges have wrestled mightily with a few of BAPCPA's plainly irreconcilable provisions. Indeed, as noted here, one judge went so far as to quote Lincoln's Gettysburg Address to prove that one can't just ignore 278 words in BAPCPA (which coincidentally was the length of the Gettysburg Address) even though a "first blush" look (i.e., the plain meaning) demanded it.

Tom Kirkendall of Houston's Clear Thinkers blog yesterday wrote this post, pointing us to a recent decision by Austin Bankruptcy Judge Frank Monroe, who became so fed up with BAPCPA's senseless, disorienting, and often menacingly complex (i.e., "kafkaesque") world that he finally lashed out at Congress, calling the legislation's adoption in its title of the words "consumer protection" the "grossest of misnomers." In re Sosa, 2005 WL 3627817 (Bankr. W.D. Tex. 12/22/05).

To put this opinion in its context, you need to know something about Judge Monroe, former member of the great Houston-based bankruptcy firm of Sheinfeld, Maley & Kay, which dissolved in 2001 (ironically, according to one partner, "because of the resurgence of bankruptcy as a very hot practice area"). Judge Monroe practiced at SM&K continuously starting fresh out of the University of Texas law school in 1969, even serving as its managing partner for several years. His investiture as bankruptcy judge occurred in 1989, and he was reappointed in 2002 (hat tip to Mike Baumer for the clarification).

Clearly, then, Judge Monroe is no ranting anti-BAPCPA loon, so when he ascends the bully pulpit, it's worth listening. In fact, I think it's fair to say that Judge Monroe spoke for most of us bankruptcy professionals when he wrote, after playing "Judge Scrooge" and having to dismiss on Christmas eve the bankruptcy petition of another hapless consumer who failed to seek pointless credit counseling in advance of an emergency filing on the eve of foreclosure (an emergency apparently occasioned in part by the bank's own assurances of cooperation):

Those responsible for the passing of [BAPCPA] did all in their power to avoid the proffered input from sitting United States Bankruptcy Judges, various professors of bankruptcy law at distinguished universities, and many professional associations filled with the best of the bankruptcy lawyers in the country as to the perceived flaws in the Act. This is because the parties pushing the passage of the Act had their own agenda. It was apparently an agenda to make more money off the backs of the consumers in this country....

It should be obvious to the reader at this point how truly concerned Congress is for the individual consumers of this country. Apparently, it is not the individual consumers of this country that make the donations to the members of Congress that allow them to be elected [House vote] and re-elected [Senate vote] and re-elected and re-elected.

Looks like Judge Monroe would concur that BAPCPA looks more like BARF to those, like him, in the thick of it.

You'll find here, in a post dated 1/16/06, another take on Judge Monroe's decision at the American Bankruptcy Institute's BAPCPA Blog.

2/6/06 Update: Another hat tip thanks to Mike Baumer for pointing us to an earlier case where Judge Monroe similarly blasted Congress, this time in connection with the insanely harsh and unfair treatment of student loans in bankruptcy. Judge Monroe labeled this standard for discharging such loans the "let's make it as tough as humanly possible to discharge a student loan" standard. In re Speer, 272 B.R. 186 (Bankr. W.D. Tex. 2001) (pdf). He called Congress's squeezing of such debtors with the nearly impossible burden of proving "undue hardship" under Bankruptcy Code section 523(a)(8) in order to get the student loan discharged "a complete and total abdication of any scintilla of responsibility."

In another well-crafted exhortation against Congress's treating defaulting student loan debtors like "bums" and "putting the fox [i.e., the schools who liberally dispense loans to beef up their bottom lines] in charge of the hen house [i.e., the gullible students who believe the school's advertising about the supposed value of an education there] and not only blaming the students if they get eaten, but also charging them for the cost of the meal!"

Most notably, perhaps, Judge Monroe wrote this the year before he was reappointed to the bench, showing he's not afraid of the "big bad wolf" [i.e., Congress]. He wrote:

In enacting § 523(a)(8) of the Bankruptcy, Congress was primarily concerned about abusive student debtors and protecting the solvency of student loan programs. Congress was specifically concerned with reports of recent graduates (especially doctors and lawyers) declaring bankruptcy as a way to avoid repayment of student loans on the eve of lucrative careers. Unfortunately, Congress did not specifically address this abuse when crafting the undue hardship exception, but rather, it decided that all students borrowing money were potential bums and could not be trusted. As an additional irritation, the statute Congress crafted gives the Courts absolutely no guidance as to what would constitute "undue hardship" other than a Webster's dictionary....

The guaranteed student loan program offers loans without regard to the borrower's credit worthiness. As such, student loans are a great benefit to those who would not ordinarily qualify for a loan otherwise. The student loan represents an investment in the borrower's future ability to generate income. Consequently, there is an expected likelihood of changed circumstances based on educational training--that is the borrower will obtain employment with income sufficient to repay his student loan obligations. However, this is not always the case. Oftentimes, through no fault of the borrower, he is unable to generate the expected income....

And, sometimes, as is the case here, the school fails to educate the borrower properly, if at all. This leaves the borrower with no benefit from his "education", no ability to repay, and an obligation to repay unless he can prove "undue hardship". The debtor has all the burdens under § 523(a)(8), although the creditor has the burden of proof under virtually every other section of § 523, including fraud under § 523(a)(2)(A). And, in this case, which is not out of the ordinary at all, the government gave Aero Tech the control over the loaning of funds to the students who applied. In a complete and total abdication of any scintilla of responsibility, our government gave Aero-Tech the right to loan our money to anyone who applied to Aero-Tech without regard to Aero-Tech's competency or honesty and without regard to whether there were actually jobs in the marketplace for its graduates, even assuming the graduates would be properly trained, which they were not.

And now, in consideration of this total abdication of responsibility by our Congress in the educational loan guaranty programs as run by the bureaucrats in Washington, our government gets a pass and the debtor bears all the risks and all the burdens--although no one took the time to explain this to Mr. Speer before he borrowed the money. This situation is akin to the farmer (U.S. government) putting the fox (Aero-Tech) in charge of the hen house (students) and not only blaming the students if they get eaten, but also charging them for the cost of the meal....

This Court believes that it is time to reconcile the "undue hardship" standard with the underlying fresh start policy of the Bankruptcy Code. "Undue hardship" should not be interpreted so harshly as to leave debtors personally liable for student loans they have no real ability to repay for the rest of their lives. To the contrary, to provide such debtors the fresh start they deserve, undue hardship should be found to exist for any debtor who, although doing his best under the circumstances, will not be able to maintain the basic necessities of life (shelter, food, medical care, clothing, etc.) and at the same time repay student loan debt. Under that test, it is clear Mr. Speer has proven undue hardship. (Citations omitted).

© Steve Jakubowski 2006

Written By:Gayle On September 5, 2006 12:09 AM

I was pleased to learn that at least one judge sees the injustice of the bankruptcy law with regard to student loans. When I borrowed my student loan money, I was married and had every expectations of remaining within a two-income household. I received no equity, whatever, during my divorce, because I was a graduate student and couldn't afford a lawyer; now the law refuses, again, to take into consideration my circumstances, and I am being threatened with wage garnishment, even though my loans were discharged during my divorce as a requirement of the court. I can't even make it through a month as it is without borrowing $300-600 to pay my bills. This is cruel and unusual punishment in the extreme. I teach in Los Angeles at a university (not tenured or tenure track). Isn't there a lawyer here who would advocate for me? Can anyone refer someone? I have spent my lifetime serving and inspiring students; I have no retirement funds, no bank account, and now, no peace of mind. Yet I am a highly reviewed instructor. Can I not receive any justice?

Written By:Ivan On November 2, 2007 3:59 PM

What about student loans made by a school that is not accredited? Say, flight training? No hours that could be put towards a degree? I thought that the language still referred to the Education Act, or loans that met the definition prescribed in the act? It seems as though they wanted to generalize the code to exclude debts for educational benefit period, but the code still points to Education Act for defining. Which makes sense in that you want some sort guideline as far as what kind of loans that are guaranteed by the gov. It seems at first blush that any debt guaranteed by the gov. or not is non-dischargeable if it was made and provided an "educational benefit". If that's the case than say some one takes out a loan to pay for training to get a CDL would be non-dischargeable....????? But as pointed out the burden is on the debtor and the creditor does not even have to object to the discharge. The debtor has to file an adversary so that BK Judge can determine that the debt is dischargeable or not. Even then usually it has to be an undue hardship. Usually the job of the creditor...

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