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CRL Files Brief in Supreme Court in Support of Thelma McCoy

Wednesday, February 3, 2021
Will Corbett

WASHINGTON, D.C. – Today, the Center for Responsible Lending (CRL) filed a brief in the Supreme Court in support of Thelma McCoy's petition to have the court take up undue hardship discharge for student debt in bankruptcy. Currently and for some time, different courts of appeal have split in how they interpret what is "undue hardship," with some courts taking a holistic "totality of the circumstances" approach and others following a rigid, demanding test known as the Brunner test. A number of courts representing some of the Blackest areas in the country such as the Fifth Circuit, have interpreted Brunner in draconian ways demanding “total incapacity” or a “certainty of hopelessness” in repayment.

The brief addresses the unfairness of the Brunner test's harsh, unforgiving assessment of "undue hardship," as well as its inconsistency with the text of the Bankruptcy Code. Most importantly, the brief focuses on the impact of student debt on borrowers of color, illustrating how these debtors are further hindered by the Brunner test and would benefit from a more holistic approach, as some circuits have adopted.

CRL litigation director Will Corbett made the following statement:

From origination through attempted discharge, Black student loan borrowers are faced with higher standards for discharging debt in bankruptcy, higher levels of default, and higher amounts of outstanding loan debt after years of repayment. Moreover, because of the legacy of institutional racism and ongoing economic exclusion, they often need to borrow more to finance their education, yet are less likely to reap the full economic security and benefits of that education because they have less wealth than whites, more debt, and experience systemic racial discrimination in the workplace.

Additional Background

In bankruptcy, student debt is not typically dischargeable. Student debtors can only cancel their student debts if they can prove that repayment of the debt would cause "undue hardship." This is in contrast to how bankruptcy generally allows cancellation (discharge) of most unsecured debt. Moreover, courts have differed on how borrowers meet this standard, resulting in vastly different outcomes for borrowers.

This situation has led to horrible cases, like that of Ms. McCoy, ​who returned to school in her forties and endured two severe accidents to pursue advanced degrees. By 2016, McCoy was suffering from intermittent paralysis and had been unsuccessful in securing steady employment despite applying for more than 180 positions, and with interest she owed nearly double her original $174,947 in student loan debt. She filed a petition for relief at age 62 and sought relief from the student debt, citing undue hardship of repaying the nearly $350,000 given her deteriorating physical and mental condition.

The bankruptcy court found no undue hardship. McCoy appealed to the district court and then to the United States Court of Appeals for the Fifth Circuit, which represents some of the areas with the highest percentage of Black Americans in the country. The Fifth Circuit, applying a particularly harsh variant of the Brunner test, denied her claim. More morbidly, the court also observed that McCoy might simply die before the end of her twenty-five-year loan repayment period, noting “the loan would be discharged without any further liability to her estate."

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Press Contact: vincenza.previte@responsiblelending.org