Money: Getting Rid of Student Debt in Bankruptcy is Tough. A New Company Wants to Change That
Check out Reset Button CEO and Co-Founder Rob Hunter in the article below!
Money – February 20th, 2020
That’s the surprising message behind a new company aimed at helping consumers through the process. Reset Button, launched last week, will connect consumers who would be good candidates for discharges with attorneys who have experience handling those cases.
Nearly one in five American adults has student debt, and the total amount owed—$1.5 trillion—has ballooned since 2005, the last time the bankruptcy law was updated. The number of borrowers who are defaulting on their student loan payments has also risen, to more than seven million now.
At the start, the company will serve people who’ve declared bankruptcy but haven’t pursued a student debt discharge. About one in four of the one million Americans who declare bankruptcy each year have student loans, says Rob Hunter, CEO of Reset Button. Yet only a few hundred people each year attempt to discharge that student debt via bankruptcy, he says. That’s in part because federal law requires borrowers to prove the extent of their financial struggles in order to get rid of student debt in bankruptcy, a process that has a reputation for being challenging.
In that light, Reset Button launches at a prime time—the status quo around bankruptcy and student debt is evolving. Advocates hope a recent case in which a debtor successfully discharged more than $200,000 will influence future cases. High-profile politicians are pushing for an update to the law that’d provide relief for student loan borrowers. Last year, a panel convened by the American Bankruptcy Institute also recommended that the law be updated.
After an initial evaluation with Reset Button to determine whether they’d be a good fit, users will pay a $300 monthly fee into an escrow account. That money won’t actually go to their attorney unless the attorney is successful in eliminating at least half the client’s balance. If so, the monthly payments will be applied to the total legal fee—12% of the amount discharged. But if the attorney is unsuccessful, the client will get their money back.
Reset Button isn’t necessarily lowering the amount consumers would pay compared to if they found an attorney on their own. They’ll likely still end up spending a minimum of $10,000 in a successful case, Hunter says. But the company allows them to bypass a hefty upfront payment, replacing that with monthly installments after a successful case.
On the other side, attorneys get a fixed amount upfront regardless of whether they win. Hunter declined to share how many attorneys are currently in Reset Button’s network—saying it’s growing so quickly after news of the launch that the number would quickly be out of date—or the specifics of their financial agreements with Reset Button.
The Rules of Bankruptcy & Student Loan Discharges