A former public servant became her own lawyer and won the discharge of $41,000 in student loans

A former public servant turned her personal lawyer and gained the discharge of $41,000 in student loans

A 51-year-old former public servant from Texas served as her personal lawyer and gained a private chapter ruling that erased her $41,509 in student loan debt.

“I knew I needed to wipe the slate clean, to start over,” Katy Adams informed Yahoo Finance, “because of the circumstances I was under… it was truly overwhelming.”

The case additional highlights the rising pattern of student loan debtors efficiently discovering reduction by private chapter. Several instances within the final two years — together with a case of a grandmother in Nebraska and a groundbreaking case in New York — present that chapter judges are more and more prepared to think about student loan debt together with different money owed in private chapter.

“I don’t believe all student loans need to be forgiven… but this is a prime example of how broken the system is and how the federal government is taking advantage,” Adams stated.

Adams spent 20 years in public service, working as a juvenile probation officer from 1993 to 2014, earlier than private occasions led her to Fayetteville, Ark. to start out over. She began a enterprise cleansing properties, however her loans stored rising: What was $23,463 in December 2000 turned to greater than $40,000 by 2019.

She filed chapter 7 chapter in May 2019 and an adversary continuing in August 2019, serving as her personal lawyer after she was informed by a chapter legal professional that the case was hopeless.

In February 2020, Adams’ creditor, Education Credit Management Corporation (ECMC), agreed to discharge all $41,509 of her consolidated Federal Family Education Loan and a chapter decide accepted.

“The thing that struck me is that she’s been paying this for three decades, she paid more than she originally took out, they collected the interest and made a profit, and now they’re coming after her still for more than the principal,” Jason Iuliano, an knowledgeable on student loans and chapter, informed Yahoo Finance.

Iuliano, who created a startup to assist debtors navigate student loans in chapter, added that there “are so many people just in the exact same situation … and it’s just very disheartening.”

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Katy Adams took on her own bankruptcy case in court and won. (Katy Adams)

Katy Adams took on her own bankruptcy case in court and won. (Katy Adams)

Road to bankruptcy

Adams spent most of her childhood in Arkansas before going back to where she was born, Texas, for college at Baylor University.

She graduated in 1992 with a bachelor’s degree in psychology, becoming the first in her family to complete a bachelor’s degree, and then entered the workforce with $14,000 in student debt.

Adams started working as a juvenile officer with a starting salary of around $36,000.

In 1998, she decided to get her master’s degree in behavioral science, specializing in criminology from the University of Houston at Clear Lake. The degree left her with around $8,000 in student debt.

In December 2000, Adams consolidated her loans into $23,500 in student debt at an interest rate of 9%.

Over the next decade, Adams diligently chipped away at her debt, working her public service job, paying around $185 each month, but the debt burden continued to grow anyway.

In 2017, she attempted to apply for Public Service Loan Forgiveness (PSLF) since she had spent two decades working for the government — but only six years of her payments qualified, falling short of the required 10 years.

Around that time, she left employment and moved to Arkansas to be closer to family. But employment opportunities were slim, she said, given her background.

This image from the Federal Student Aid page of the Department of Education show the page  to apply for federal student loan forgiveness. A political battle is reheating over a federal program that was designed to cancel student loans for certain public workers but has largely failed to deliver that promise. The program, Public Service Loan Forgiveness, promises to erase federal student loans for public workers who make 10 years of payments while working for approved employers. (Department of Education via AP)

This image from the Federal Student Aid page of the Department of Education shows the page to apply for PSLF. (Department of Education via AP)

‘I could plant about 20 trees for all the paper I used’

In May 2019, she filed for chapter 7 bankruptcy. And after being told her student debt would not be discharged in bankruptcy, she decided to pursue that as her own lawyer.

“They were like, it can’t be done,” she recalled a dialog from one Fayetteville-based legal professional, whom she approached to assist her along with her adversary continuing.

Austin Smith of Smith Law Group, who represents student debtors of their chapter instances, famous that particular person debtors representing themselves — so-called professional se debtors — appear to fare comparatively decently.

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“I must confess pro se debtors seem able to obtain agreements to discharge federal loans more easily than lawyers,” Smith informed Yahoo Finance. “Makes you wonder whether lawyers like me help or hurt in certain situations.”

After placing collectively spreadsheets along with her projected earnings and receipts of her student loan funds from 2000 to 2019 — together with approximated funds for 1993 to 2000, for the reason that paperwork wasn’t offered by her loan servicer — Adams felt some optimism.

“I could plant about 20 trees for all the paper I used,” she joked. “Just the complaint, that piece … was a four-inch binder with tabs and everything. It was truly overwhelming.”

Source: Duke Law Journal/DECEMBER 2020/

Source: Duke Law Journal/DECEMBER 2020/ “THE STUDENT LOAN BANKRUPTCY GAP” by JASON IULIANO

Adams reached out to Kevin Rosenberg, a navy vet who also fought for his own bankruptcy discharge, to get a sense of what the creditors may do in court.

Rosenberg, who has written a book about his debt journey, told Yahoo Finance that while “congressional motion on student loan chapter reform is lengthy overdue, I would like these scuffling with student loan debt to know that they’ll battle again, and extra importantly they’ll win.”

Once she filed for chapter, Adams’ loans had been transferred to ECMC, which manages federally-backed student loan accounts which can be in default or chapter.

In a courtroom submitting dated January 30, 2020, ECMC “proposed alternative repayment programs” to Adams and tried to settle the case outdoors the courtroom — “exploring extra-judicial alternatives to trial.” Adams responded that she was “not willing, at this time, to consider and/or accept alternative repayment programs available.”

At one point, Adams said, ECMC offered to pay about half of the debt, $22,000, with the rest written off. (Creditors often prefer settlements to avoid trials that set precedents.)

“It’s another instance where the creditors are willing to settle cases that they know or they think they’re likely to lose in order to avoid the development of adverse precedent,” Iuliano said. “They don’t want other attorneys to take notice that undue hardship discharge is possible.”

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Adams “respectfully declined,” she explained, “because I had given them all the documentation showing that I had [already] paid $38,000. I was ready to go in front of the judge — what did I have to lose?”

Autumn Trees & Leaves Create a Beautiful Path Outside the Eastern & Western Districts of Arkansas,  United States Bankruptcy Court

The outdoors the of the United States Bankruptcy Court for the Eastern & Western Districts of Arkansas.

Standards judges use for chapter instances

In most private chapter instances involving student debt, a decide applies the Brunner take a look at — a three-pronged take a look at utilized to student loan debtors who filed adversary proceedings looking for to discharge academic debt — to find out if particular student loans brought about a borrower to undergo undue hardship.

In the case of Adams, the courtroom used a barely completely different customary known as the “totality of circumstances.” According to the National Consumer Bankruptcy Rights Center, this take a look at includes three issues: The debtor’s monetary sources previous, current, and future, a calculation of their — and their dependent’s — cheap dwelling bills, and different related information and circumstances surrounding the chapter case.

While 9 district courts within the U.S. use this alternate customary, typically, “there weren’t differences in terms of outcomes” between the 2 assessments, Iuliano famous, based mostly on his analysis.

After a trial date was set, Adams determined to file a movement for abstract judgement after studying that she may accomplish that from the Rosenberg case, and that request meant that she may plead her case through paper as a substitute of showing in-person.

“You never know what side of the bed the judge woke up on, which has a lot to do with the outcome of the case,” she famous. “I did not want to miss one detail, I am much more adept at telling my story in writing than verbally.”

The following morning, earlier than the decide may rule on whether or not Adams met the undue hardship customary, the attorneys had requested for the case to be dismissed and for her loan to be absolutely discharged.

After her authorized victory and profitable recent begin, Adams is now contemplating legislation college.

Editor’s notice: A earlier model of this submit misstated Adams’ first job out of school.

Aarthi is a reporter for Yahoo Finance. She will be reached at [email protected] Follow her on Twitter @aarthiswami.

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