Consumers win Supreme Court bankruptcy rulings
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Posted by Bob3
(205.174.22.26) on May 18, 2004 at 18:26:11:
Consumers win Supreme Court bankruptcy rulings
Updated May 18, 2004, 10:14 a.m. ET WASHINGTON (AP) — The Supreme Court made it easier Monday for financially troubled people to go to bankruptcy court to get relief from education loans or other debts. Justices sided with a former Tennessee student who claimed she could not afford payments on $4,000 in state-backed education loans. The state argued that it could not be taken to federal bankruptcy court against its wishes. Justices agreed 7-2, though, to let Pamela Hood pursue her case. The decision was one of two involving bankruptcies issued by the court on Monday. In the other, the court was sharply split over how judges should determine interest rates for people on installment payment plans as they reorganize their finances. In the student loan case, Tennessee had the backing of 48 states that urged justices to protect states from federal court actions by people seeking to avoid paying state judgments. States are ordinarily immune from lawsuits by private individuals, unless the state waives its immunity or unless Congress expressly overrides it. The high court dodged that question. Chief Justice William H. Rehnquist, writing for the majority, said a bankruptcy court can decide the narrow question of whether a student loan debt is an undue hardship without implicating state immunity. "It's a great relief for consumer debtors," said John Rao, attorney for the National Consumer Law Center. He said Congress has made it hard for people to get out of student loan debt, but the justices' decision makes clear that they have an opportunity to try. The case stems from the financial woes of Hood, who borrowed money for school between 1988 and 1990. She filed for bankruptcy in 1999, and the bankruptcy court granted her a discharge of other debts, but not her student loans. Hood then went back to court to claim the student loan repayment would be too difficult. Hood's attorney, Leonard Gerson, said the ruling reverses a trend of high court decisions in favor of states. It is important, he said, because states are creditors in many cases pending in bankruptcy courts. Daryl Brand, associate solicitor general of Tennessee, said the ruling left open an avenue for states to claim that federal bankruptcy courts had infringed on state sovereignty. The case is Tennessee Student Assistance Corp. v. Hood, 02-1606. In the second case, the court ruled 5-4 in favor of a couple in Kokomo, Ind., who couldn't afford the 21 percent interest payments on their used truck. They wanted to keep the truck while they reorganized their finances in bankruptcy court under Chapter 13. That is one of the most common kind of bankruptcies, with more than 473,000 filed last year. At issue was the interest rate they had to pay on the truck, which was worth less than they owed a finance company. Justice John Paul Stevens, writing for himself and three colleagues, said that judges should decide an appropriate interest rate for someone to pay — "a rate high enough to compensate the creditor for its risk but not so high as to doom the plan." "If the court determines that the likelihood of default is so high as to necessitate an 'eye-popping' interest rate, the plan probably should not be confirmed," he wrote. Justice Clarence Thomas added a fifth vote to reverse a judgment against the Indiana couple. Justice Antonin Scalia, in a dissent joined by Rehnquist and Justices Sandra Day O'Connor and Anthony M. Kennedy, said that Lee and Amy Till agreed to pay 21 percent interest when they bought the truck, and that was a fair amount for a bankruptcy judge to require. The case is Till v. SCS Credit Corp., 02-1016.
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