Understanding the Law of Debt

Speaker’s Corner From The Practice September/October 2023
A conversation with a law professor on debt collection and bankruptcy

Dana Walters, associate editor of The Practice, spoke with Dalié Jiménez, professor of law at University of California, Irvine School of Law, and director of the Student Loan Law Initiative, a partnership between UC Irvine Law and the Student Borrower Protection Center.

Dana Walters: How did you first become interested in bankruptcy, student debt, and debt collection?

Dalié Jiménez: It’s a very personal story. I emigrated to the U.S. from Cuba, and I experienced—personally and in my family—bankruptcy, debt collection abuses, scams, all sorts of issues that are particularly prevalent in immigrant communities. A decade after we arrived, my parents declared bankruptcy trying to protect their home, and it was their bankruptcy that resulted in my own bankruptcy. A debt collector who was collecting on a credit card that my parents had put me on as an authorized user when I went to college, in case of emergency, came looking for me. The debt collector knew exactly how much credit I had available on my credit cards (they had access to my credit report). They offered to settle the debt for half of what it was (still several thousands of dollars), and I agreed to pay that by maxing out two of my own credit cards. This then meant the debt escalated. I didn’t have money to be in a maxed-out situation. Ultimately, I ended up filing for bankruptcy soon after college.

Headshot of Dalié Jiménez smiling wearing a black top.
Dalié Jiménez

Years later, I found out the debt collector had lied to me: I wasn’t liable for any of the debt on that card. I was an authorized user, but I had never signed anything agreeing to repay. Authorized users are only liable for purchases the bank can prove were bought by the person, and I had never used that credit card. But they had cornered me, and my parents’ own bankruptcy lawyer had told me I had to pay.

When I started law school, I saw a class on bankruptcy in the course catalog. I was planning a career in tech policy and privacy law because I had studied computer science as an undergraduate. But I signed up for bankruptcy with (now Senator) Elizabeth Warren, and then I signed up for everything Professor Warren was teaching. And that was it. I already had the personal experience, and then I started to learn about the system. I never touched privacy work!

Every day people are going into debt to survive—to fix their car so they can work, to buy their kids clothes for school, to buy food. Student debt is not any different from the debt you take on to survive.

Dalié Jiménez, professor of law, UCI Law

Walters: What would you describe as the relationship between student debt and other forms of debt? What’s similar? What’s different?

Jiménez: I’m literally teaching a class called The Law of Debt this semester, and so, I’m thinking a lot about debt, from national and sovereign debt to more personal types of debt. Consumer debt from the point of view of individuals is what scholars call a “double-edged sword.” It can be a gateway—a door to opportunities—but it can also really harm people. Every day people are going into debt to survive—to fix their car so they can work, to buy their kids clothes for school, to buy food. Student debt is not any different from the debt you take on to survive, in my opinion.

Student debt is often a way to buy a ticket to a better life. And when you’re in that situation where you have to take on large amounts of debt for an uncertain future, you’re doing it because you’re hopeful. You may also be apprehensive. But it’s important to remember that you don’t always have a choice.

When it comes to debt, in many cases, there are degrees of choice about incurring it. We live in a society in which people—particularly minoritized people, but really anyone who didn’t luck into a family that has intergenerational wealth—have to pay for school to try to improve their financial situation. For a long time the message was you just have to do it and over time you will succeed. And if you don’t succeed, it’s your fault because you did something wrong—for instance, you didn’t study hard enough. But that’s not necessarily the case. It’s important to remember that taking on student debt is not a real choice for many people.

And it’s worse in some ways. What opportunities are opened by taking on debt are very different for different groups, and sometimes have nothing to do with the amount of debt someone takes on. They have to do with where you were born or where you happened to grow up. Were you born Black? Your opportunities are going to be much more limited, on average. Questions about student debt are therefore embedded into wider social structures.

Walters: How does student debt operate differently when it comes to bankruptcy?

Jiménez: Bankruptcy is our last-resort social safety net system. It can be an avenue toward a fresh start. Bankruptcy allows us to erase so many different kinds of debts. But several times since 1976, Congress has made it almost impossible to discharge student debt. One bit of good news: the Biden administration recently instituted a policy to try to make it easier to discharge (I had a small hand in that, which feels really good). But Congress really needs to fix this problem. There is no legitimate reason to protect private student loans from being discharged in bankruptcy.

Even though law school is very expensive—and the reality of it is that means you are limited in what you do afterward—it still seems to me that for many people and for many (though not all) law schools, it is a rational, good bet.

Walters: And because this is a magazine about lawyers, would you say there’s anything particular about law school debt?

Jiménez: Law school ends up being a second bet that you take, often incurring even more debt on top of an undergraduate debt load. It does seemingly hold this promise that you may be able to pay off the debt because the returns are so much higher.

The University of California, Irvine is a Hispanic Serving Institution with many first-gen students. Being here you can really feel how many students see law school as an avenue to fulfilling the American dream. I did too. Even though law school is very expensive—and the reality of it is that means you are limited in what you do afterward—it still seems to me that for many people and for many (though not all) law schools, it is a rational, good bet. It’s a second lottery ticket that you buy, hoping it’ll yield perhaps what the undergraduate lottery ticket did not.

Walters: You mentioned career choice, so that’s a great pivot to ask about the impact of debt on careers. Your institution is well-known in research on this because in its first year UCI Law offered free and reduced tuition to some of its early-year cohorts, offering an interesting laboratory for whether or not students who hold less debt make different career choices. Part of the thinking has been that debt drives career choices for lawyers with students who might otherwise pursue public interest or government jobs taking higher-paying firm jobs. But that wasn’t necessarily the case at UCI—and other studies (e.g., the AJD) have further challenged that assumption. Why do you think this is? And looking more broadly, what is the role of debt on career choice?

Jiménez: I do empirical work and randomized trials, and my overall view of this data is that it’s really hard to disentangle all of the reasons why someone ends up in a particular place or career. You framed it as choice—and most people do. But the idea of choice is not really a complete picture or even accurate, because who really gets to say exactly what they want to do and does it? Where you end up, or what career you are in, is as much a product of your desires and your hard work to get there as it is a result of blind luck.

You have to ask questions like: Were you really in need of the free education? Had you not received the free education, would you have had a backup plan? What was the market like at the time you were graduating? There are so many other random moments of chance that matter too, like what professors you meet. Had I not met Elizabeth Warren, I would’ve had a very different life.

I went to law school knowing I would have to pay for it myself and knowing that it would be loans or grants, if I got any. And that I would also have to support my family. To that end, I focused all of my energies on going to a law firm as soon as possible, including that 1L summer. And I was able to, but it’s not like that was entirely (or even mostly) up to me. I was completely focused on paying off my debt and then maybe I could do something else. But, had I not had to incur all that debt, I’m still not sure I would’ve done it any differently. Because at the same time, I still didn’t have wealth to fall back on. An absence of debt doesn’t mean a presence of wealth. Someone going to a firm may have already decided to do that, whether or not they got a scholarship. In that sense, it probably has less to do with the idea of choice than we think.

Where you end up, or what career you are in, is as much a product of your desires and your hard work to get there as it is a result of blind luck.

Walters: Turning the tables a bit, your research has also looked at the role of lawyers and debt. One insight you’ve pointed out in your scholarship is that those brought to court for debt collection frequently end up defaulting on their debt, especially as they have gone increasingly without legal representation. What is the role of the legal profession in debt—and debt collection—issues? What should the role of lawyers be?

Jiménez: As far as I can tell, a lack of legal representation has always been a problem in the U.S. And if we step back, the vast majority of lawyers are working for the powerful, which is not surprising because the powerful are the people who have money to pay for a service, and that’s what lawyers do. They provide a service. That’s the job. You’re not doing it for free. You’re doing it for pay, and the weaker parties generally do not have money to pay.

Provisions in consumer protection statutes that cover attorney’s fees generally recognize that individuals often cannot pay for the services that they require to be on an even keel in lawsuits, so statutes create a monetary incentive for a lawyer to take on that kind of case.

In the debt collection context, however, these provisions aren’t typically available, and so most consumers are unrepresented. The system that we have, which is heavily stacked on one side, is also heavily created by that side, because whenever there’s a rule change or a discussion of what should be done about debt, the consumers are not there. The consumers’ lawyers are few, busy with often too many clients, are not getting paid enough—and so they can’t be there in the same way either. We live in a system where bankruptcy judges almost always come from corporate bankruptcy practitioners, not from consumer bankruptcy lawyers. What is the role of lawyers? The current role of lawyers is very depressing. Debt collection is just an example of a much larger problem in the legal profession.

What should it be? To the extent that so many students come to law school for the purpose of changing the world (if you believe admission statements), one would hope it is changing that world. Yet it turns out that changing a system that is largely created and perpetrated by the rich and powerful is actually quite hard, although I refuse to believe it’s impossible.

You work for your client, yes, but you are also an officer of the court and you owe a duty to the system that is separate from your duty to your client.

There are some things I could see lawyers help change. In debt collection and other consumer litigation, you often have one-sided litigation. You have a plaintiff represented, and the consumer isn’t. And yet, the court still operates with this notion that we have the two parties represented. I don’t actually think that notion was ever true in reality, but since we still operate under that assumption, it is a lawyer’s duty who’s representing the plaintiff to at least pretend that they can’t get away with everything. They shouldn’t do everything just because they can get away with it. You work for your client, yes, but you are also an officer of the court and you owe a duty to the system that is separate from your duty to your client.

Walters: One avenue lawyers might be able to play is in closing that information gap for consumers. You’ve also written about the possibility of self-help because of this lack of legal representation in debt collection, and one way it seems like you’re trying to help is with the platform Upsolve. Could you talk about what Upsolve is, how you got involved, and what the platform is trying to do?

Jiménez: I’ll start with how I got involved. I’ve been running a randomized controlled trial with Jim Greiner and Lois Lupica since 2012 in which we test self-help legal materials around debt collection and bankruptcy in a way like pharmaceutical companies test drugs (for more on this, see “The Access to Justice Lab”).

But when you’re making self-help materials, you realize how bad some of the self-help materials that exist are. It makes sense why. It’s hard to explain some of this very complex stuff. There’s a lot of material, and it’s hard to get the whole picture of what you’re explaining. How do you know that you’re giving them the right information and not missing pieces? This is a continual problem. And so, we started creating new materials for people sued on a debt, and this undergrad at Harvard, Rohan Pavuluri, volunteered with the team that helped create the materials. Some of the work was just drawing cartoons and typefacing, but this kid learned all the information that we had in the materials and just ran with it. He took a year off from Harvard, recruited lawyers, and started this nonprofit. I joined their advisory board.

Their idea was that they wanted to be the TurboTax for bankruptcy—trying to really simplify the process and speak in a way that you understand, not necessarily what the IRS says on their website, and then help you navigate this complex process. I think it’s also the kind of thing that the government should do, since they created the complex system, but in the imperfect system, Upsolve is trying to step in and meet that need.

What’s really hard, and what we describe in our paper, “Self-Help Reimagined,” is that when you’re trying to simplify things, you have to make choices. And that means when you make a choice for someone, that choice may not be the best choice for someone else. Some people will fare worse because of the choice you made. That is an ethical conundrum. But at the same time, if you don’t make that choice, then you don’t serve a lot of people because you’re just leaving them to “the market” where they have to proceed using Google, or a lawyer if they can afford one (but most cannot). Upsolve is trying to figure this out, but it’s not easy.

Walters: In your day job you’re a law professor. When you’re talking to law students, they’re often taking on a lot of debt, and a lot at UCI, as you noted, are first gens. They’ve made, and are continuing to make, choices about their careers as lawyers and their lives. What advice do you give them?

My advice [to borrowers] is to remember that their inability to repay is oftentimes not their fault, just as the necessity to take on the debt in the first place.

Jiménez: I generally don’t give advice in the abstract. When I talk to students, I ask them questions so I understand their circumstances. But in the abstract, I think this is the most important thing about debt: When people take on debt and it doesn’t work out, whether it’s chronic or incidental, they internalize the pain of whatever’s happening. They feel ashamed that they made a choice that turned out badly, whether it’s to take on the debt in the first place, or they didn’t pay on time this month, or they went on a vacation and then lost their job and they shouldn’t have done that. My advice is to remember that their inability to repay is oftentimes not their fault, just as the necessity to take on the debt in the first place.

Of course, it’s always important to do your research. Don’t take out private loans if federal loans are available. Don’t necessarily go to any school—look at the employment figures, financial aid package or scholarship, and the cost of living in that city. Weigh that and do the best you can. And then do the best you can when you’re there. Go to school and try hard. But remember, no matter what, it’s a bet you’re being forced to take. You have some control over how it turns out whether you win or don’t, but it’s still a bet. You don’t have all the control. If it doesn’t work out, it is helpful to think about how you are one piece in a larger system. That doesn’t mean that everyone in every circumstance is blameless. But it is also not to say that just because you couldn’t pay your loans or your credit cards, you are to blame.

Walters: What can law students do to combat the system and this internalization of guilt?

Jiménez: I’ll give an example from my work. When I do debt collection research, debtors often end up paying debts or getting judgments against them even when they show up to court because they immediately acknowledge that they couldn’t pay. They often recount a sad story about losing their job or getting sick. But guess what? When you go to court and you say all that, what you’ve also said is that you’re acknowledging the debt, and the judgment is going to be issued against you. But the judgment is not for whoever your original creditor was. The judgment is for some party you’ve never heard of who bought your debt and is asking for some amount that you don’t remember, and that may or may not be correct because they never actually had to prove that.

This drives me bananas because it shows how people have internalized their shame and end up letting the system (and choices made by our government) completely off the hook. It’s not to say there’s no personal responsibility for not being able to pay debts. But it is a complex issue, and I do believe most people are trying to do the best they can under their circumstances. Not buying lattes or avocado toast or never going on vacation will not solve what is at bottom a structural problem driven by racist government choices, monopolies and monopsonies exerting power and stripping it from workers, and a deficient government safety net.

This culture of personal responsibility and shame works out very well for those in power. It isolates the individual debtor from other people, even when there are thousands upon millions in the same circumstances as them. Then it hampers the individual from realizing it doesn’t have to be like this. People shouldn’t have to take on debt just to get a college degree to get a job that will pay them a living wage. There are structural issues at play here, and I hope law students look at those and think, “I should fight for those issues, and I should fight for a better future.”

Dalié Jiménez is professor of law at the University of California, Irvine School of Law and director of the Student Loan Law Initiative. Her scholarly work focuses on contracts, bankruptcy and consumer financial distress, the regulation of financial products and its intersection with consumer protection, and access to justice. Professor Jiménez uses qualitative and quantitative empirical methods to explore the questions of how individuals cope with financial distress, how and whether our legal framework and institutions help or hinder individuals extricate themselves from this distress, and the role of the legal profession in helping individuals with this and other civil legal problems.

Dana Walters is associate editor of The Practice and assistant director, content strategy at the Harvard Law School Center on the Legal Profession.