Attacking Families in Bankruptcy Court

01 Nov Attacking Families in Bankruptcy Court

Bankruptcy cannot be a family planning consideration according to one federal court. Don’t plan on having children any time soon if you’re taking out student loans to finance your education! That’s the substance of afederal district court decision in the Southern District of Texas, ruling in favor of a claim by the relentless Educational Credit Management Corporation against a Texas couple with six children in bankruptcy.

Babies, in the view of this court, do not constitute an additional circumstance of the kind necessary to satisfy the second prong of the Brunner test for dischargeability of student loans. The judge reasoned that since a woman can choose whether or not to have a child, that child is not evidence of a total incapacity in the future to pay student loan debts for reasons not within debtor’s control.

I quote Niemuller because on first reading Joseph and Amy Pratt don’t seem particularly deserving of sympathy. He is an engineer earning $54,000 a year, and she admittedly expected to be a stay-at home mom at the time she attended the University of Utah and incurred the student loan debt. Three of their six children were born while the couple was still in school, and the sixth after they had filed for Chapter 7 bankruptcy. Their monthly budget includes a 15 percent tithe to a church which encourages early marriages and large families.

Thus, one could argue (as the judge did, at least indirectly) that the Pratts and other co-religionists who might seek discharge on similar grounds were trying to manipulate the system to subsidize an ecologically irresponsible religiously-mandated lifestyle.

Unfortunately, all of the arguments used to support the decision would also apply to Joe and Jody Jones, a Unitarian couple making $30,000 a year, with three small children, the third unplanned. Suppose this impeccably liberal and rational couple calculates that by virtue of extreme frugality, taking advantage of community resources, she can stay home and provide two children with high quality parenting for the seven years until the younger starts school, and still pay the interest on the student loans.

At year four, she discovers she’s pregnant. Other unforeseen circumstances push them over the financialedge into bankruptcy. According to the rationale of Pratt, the decision to continue with the third pregnancy is a voluntary choice, and the quality of life of the older two children less important than holding the parents to the full letter of a debt obligation.

Ah, but … says the dissenting voice. They shouldn’t have cut the budget so close. Two children were already too many. People with student loans should wait until they are on firmer financial ground before deciding to reproduce.

This is all very well and good, but women who pursue advanced degrees often find themselves thirty years old, with a hefty loan obligation amortizing over another thirty years, and immediate salary prospects in many fields that don’t cover reasonable living expenses including child care.

I’ve been out of school a while but when last I looked, there was no lifetime poverty and celibacy oath included in application materials for advanced degree programs in humanities and sciences. The way things are now, this must be an oversight.

Telling young Americans that their decision to pursue an education followed by a decision to have children will condemn them to an unending cycle of debt and may make it impossible for them to provide the benefits of a modest middle-class lifestyle for those children comes dangerously close to a coercive family-planning policy. It looks uncomfortably like China’s one-child policy, and the differences don’t leave us on the moral high ground. The Chinese were never actually forbidden to have a second child, but if they did, that child was not entitled to education or medical care. Is this starting to sound familiar?

In contrast to the blanket Chinese policy, the American student loan debt trap singles out those who borrow the most for educational purposes, that is, intelligent motivated young people from lower income backgrounds, and leaves the high school dropouts without any particular disincentive to breed profligately.

As long as the Brunner test remains the standard against which hardship discharges are measured, and so long as the attitude prevails that raising a family is a luxury of secondary significance compared to keeping the loan industry and diploma mills churning, decisions such as the one in Pratt will continue to be handed down. Something needs to change.

I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.