Reset Button approaches student debt from a new angle – TechCrunch
Total student loan debt in the United States $ 1.5 trillion, and more than 44 million Americans have student loans outstanding.
According to research by Villanova law professor Jason Iuliano, one million student loan borrowers have filed for bankruptcy in the past five years. However, 99.9% of them did not include their student loan debt in their bankruptcy filing.
That research was the seed of what would become Reset button, a new startup founded by Iuliano and Rob Hunter to help student loan borrowers who have filed for bankruptcy find a new way to incorporate that debt into their filing.
The only way to include the student loan debt in a bankruptcy filing is through legal proceedings. In the past, these cases have been settled out of court less often than other types of civil proceedings.
This means that the cost of including student loan debt in bankruptcy filings is at least about $ 10,000. Well, if there was a guarantee that you could trade hundreds of thousands of dollars in student loan debt for $ 10,000-15,000, obviously you would. But most people who are already about to file for bankruptcy don’t have a minimum of $ 10,000 to spend on a trial attorney. And even if they did, there is no guarantee that they will win in court, adding even more debt and no relief.
This is what Reset Button is trying to change.
To be clear, Reset Button is aimed directly at people who already Filed for bankruptcy but were told they could not include their student loan debt in these filings, and so they did not.
This is how it works:
Reset Button has built a network of litigation attorneys who are experienced in finding student loan relief. When a new user hits the reset button, the startup sends them through an evaluation process that collects financial information, etc. to assess whether or not any of these attorneys could seek payment of that user’s student loan debt. This assessment takes into account a number of signals, including past legal cases, that are comparable to the user’s situation.
This process also does much of the heavy lifting that makes hiring a litigator so expensive. These attorneys often have to do a lot of research, track down bank statements and bills and other paperwork before they can actually begin litigation.
As the link between the debtor and attorney, Reset Button is able to automate much of this process for the attorneys by delivering a package of information about the case and connecting the user to the right attorney for them.
Reset also seeks to cut costs for debtors. The company charges either 12% of total debt paid or $ 10,000 (whichever is the lowest). Reset also allows users to pay that sum in monthly installments of $ 300 over time. This is in stark contrast to people hiring their own lawyer to pay the costs up front.
Reset Button can do this through a payment process called factoring. In short, Reset buys the accounts receivable from the legal fees and charges the debtor with their own payment schedule. Reset makes money with lawyers who pay for lead generation, technology services, and marketing apparatus.
Factoring has come under fire from some who say service providers sometimes raise prices to account for their fees, but Reset Button co-founders Hunter and Iuliano say their lawyers actually do so because of the workflow optimization provided by Reset Button ask less.
The company also offers one Knowledge base for debtors looking for financial advice and resources but the only source of income comes from the actual student loan debt litigation in bankruptcy filings. Reset Button does not offer any other services such as refinancing, debt consolidation, or income-related payments, and the company does not have official partnerships with such service providers.
However, Hunter said this could be a path the company is exploring as it grows.
Perhaps most importantly, the reset button offers a fresh start guarantee. In short, if the attorney fails to pay off your debt, Reset will pay your legal fees.
There has been movement in the landscape of student loan layoffs with bankruptcy.
Essentially, debtors have to prove in court that they have passed the “unreasonable hardship” test, which is a particularly vague framework. Although there are some differences between different jurisdictions, the general idea is that a debtor must prove that they cannot currently repay the loan, that there will be no change further down the line that will allow them to pay the loan in the future and that they have made every effort to settle the loans in the past.
Historically, this has been a difficult threshold for the fraction of people who take steps to litigate their student loan debt. However, courts seem to be opening up the interpretation of undue hardship in a certain way.
“In these cases a phrase is used that I think maintains this myth, and that is, ‘certainty of hopelessness,'” said John Rao, Attorney at the National Consumer Law Center. “And it’s almost as if something could improve for you as long as you are still alive and breathing. It’s just an impossible burden. It basically means you could win the lottery or something. That’s just not the standard I think Congress had in mind. “
In 2015, in a case between Robert E. Murphy and the DOE / ECMC, Rao written to the courts argue that they should re-evaluate the test for undue hardship:
Instead of preferring one existing test to another, we ask this court to provide a formulation of the unreasonable standard of hardship in simple terms that limits the consideration of irrelevant and inappropriate factors that are incompatible with the legal language. A determination of whether a debtor’s hardship is likely to persist should be based on hard facts, not guesswork and unfounded optimism.
Recently, a judge in the Southern District of New York ruled in favor of a debtor, Pay off more than $ 200,000 in Kevin Rosenberg’s student debt. Of course, the lenders will appeal.
However, Judge Morris, who directed the case, wrote in her ruling that “most people (bankruptcy professionals as well as laypeople) find it impossible to redeem student loans,” and that their “court will not participate in the perpetuation of these myths.” ”
Reset Button has raised money from investors Craft Ventures, Slow Ventures and Jeff Morris Jr. from Lambda School, among others. The company declined to split its total amount of investments.
“Society is led to believe something that is wrong for decades, which is probably the greatest initial challenge,” said founder and CEO Rob Hunter. “One of the unfortunate facts is that many consumers believe that the information is wrong because a lawyer told them so. So it’s an uphill battle that you have to swim against. “