TULSA OKLAHOMA BANKRUPTCY ATTORNEY » Student Loans

U.S. Supreme Court Hears Argument Regarding Student Loan Discharge

Dan Nunley — Wed, 02 Dec 2009 10:00:49 +0000

Yesterday, the U.S. Supreme Court heard argument in a bankruptcy case in which the confirmed Chapter 13 plan effectually discharged some of the debtor’s student loan debt when there had been no finding of “undue hardship” as required by bankruptcy law.

The heart of the matter in this case is this – when you have a confirmed Chapter 13 plan with language that violates a bankruptcy statute, which controls? The confirmed plan or the statute?

Student loans are one of several debts that cannot easily be discharged in bankruptcy. In order to discharge student loan debt, a debtor must prove that repaying the student loan would work an “undue hardship” upon the debtor and his family.

The case at issue, United Student Aid Funds Inc. v. Espinosa, involves a debtor who received some $13,250 in student loans to attend trade school. Mr. Espinosa filed for Chapter 13 bankruptcy and his Chapter 13 plan proposed paying $274 per month over five years to United Student Aid Funds Inc., an amount that would cover the principal but not some $4,000 in interest on the student loans. The lender did not object to the bankruptcy court’s confirmation of the plan.

And Espinosa never filed an adversary proceeding to prove undue hardship as federal bankruptcy statutes require for discharging student loan debt.

After Espinosa completed the payments required by his Chapter 13 plan and received his discharge order, United Student Aid Funds (USAF) began intercepting Espinosa’s income tax refunds to satisfy the unpaid interest from his student loans. So Espinosa reopened his bankruptcy case and petitioned the bankruptcy court for an order holding USAF in contempt for violating the discharge injunction. USAF cross-moved for relief from the bankruptcy court’s order confirming the plan, on the ground that the order had been entered in violation of USAF’s rights under the Bankruptcy Code and Rules.

The bankruptcy court rejected USAF’s argument. It held that USAF had violated the discharge injunction and ordered USAF to cease all collection activity against Espinosa. It also denied USAF’s motion for relief from the confirmed plan, holding that the plan became final when it was confirmed and that USAF should have objected to any procedural defect before confirmation.

USAF appealed to the district court, which reversed the bankruptcy court.

Then Espinosa appealed to the 9th Circuit Court of Appeals which reversed the district court. The 9th Circuit held that student loan debts can be discharged by way of a Chapter 13 plan if the creditor does not object after receiving notice of the proposed plan.

Therefore, at least in the 9th Circuit, the terms of a confirmed Chapter 13 plan control even though they conflict with the plain language of a bankruptcy statute.

In yesterday’s oral argument before the U.S. Supreme Court, lawyers for United Student Aid Funds and the Obama administration warned that upholding the 9th Circuit’s ruling would encourage many more debtors to try an end run around the statutory requirements for discharging student loans in bankruptcy.

A decision should be announced before the Supreme Court ends it’s term next July.

Will I Be Able To Get A Student Loan If I File Bankruptcy?

Dan Nunley — Wed, 24 Jun 2009 10:00:31 +0000

The Bankruptcy Code makes it illegal for government agencies to refuse student loans to those who have filed bankruptcy. 11 USC 525(c).

So if you have filed bankruptcy, you are still eligible to receive student loans that are backed by the government (Title IV loans) such as the Stafford Loan.

However, if you want to get a student loan from a private lender, that’s a different matter entirely. The Bankruptcy Code prohibits discrimination only from government agencies, not private lenders.

Therefore, private lenders are under NO obligation to give you a student loan if you have filed bankruptcy or have other credit problems.

This doesn’t mean that you won’t be able to obtain a student loan from a private lender if you have filed bankruptcy. It just means that private lenders are allowed to consider your credit history including bankruptcy filings in evaluating your student loan application.

If you’re struggling with debt problems and would like to know more about how bankruptcy may be able to help you, contact Dan Nunley today by completing the “Contact Dan” form on the right side of this page. I’ll get back in touch with you as soon as I can to schedule a FREE initial telephone consultation. I would count it a privilege to be able to visit with you in a relaxed and confidential environment where I’ll answer all of your questions in plain English and give you the straight scoop on the pros and cons of bankruptcy as related to your specific situation.

Chapter 13 Bankruptcy and Student Loans in Oklahoma

Dan Nunley — Mon, 23 Feb 2009 16:37:35 +0000

In “Student Loans and Bankruptcy in Oklahoma” I discussed how the current bankruptcy laws require you to prove “undue hardship” in order to discharge or wipe-out your student loan. If you are unable to prove undue hardship, filing Chapter 13 bankruptcy may still be helpful to you.

One benefit to you is that in a Chapter 13 bankruptcy which is a repayment plan, you pay what you can afford to pay on your unsecured debts including your student loan, not what your loan company says you have to pay.

Another benefit to you is that while you are in the Chapter 13 repayment plan, the student loan creditor must stop all collection activity including telephone calls, letters, lawsuits, wage garnishments, and tax refund intercepts.

The Chapter 13 repayment plan will last from 3 to 5 years. At the end of that time, if you have not paid your student loan in full, you will still owe the remaining balance. However, you simply go back to making your monthly payments directly to the student loan company. This will likely be much easier for you since you will not have remaining balances on most other unsecured debts such as credit cards and medical bills which are wiped-out completely in the Order of Discharge you will receive at the end of the Chapter 13 plan.

If you are struggling with debt problems and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation. I would count it a privilege to be able to visit with you in a relaxed and confidential environment where I’ll answer all of your questions in plain English and give you the straight scoop on the pros and cons of bankruptcy as related to your specific situation.

Student Loans and Bankruptcy in Oklahoma

Dan Nunley — Mon, 23 Feb 2009 16:36:11 +0000

Before 1998, student loans could be discharged or wiped-out in either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy if they had been in repayment status for at least seven years. However, changes to the bankruptcy laws in 1998 made government-backed student loans non-dischargeable in bankruptcy regardless of the age of the loan. Then in 2005, further changes in bankruptcy laws made even private student loans non-dischargeable.

Today, the only way to discharge student loans in bankruptcy is to prove that repaying the student loan would create an “undue hardship.”

This requires filing an “adversary proceeding” which is basically a trial within your bankruptcy case. At trial, you must convince the bankruptcy judge that you can’t provide even a minimally adequate standard of living for yourself and your family and repay the student loan at the same time. More than likely, you will need to show that the conditions causing the hardship are not likely to improve over time. While this is not an easy task, if you are successful in showing undue hardship, your student loan will be completely cancelled.

If you are unable to prove undue hardship, Chapter 13 bankruptcy may still provide help to you with your student loans. See my article on Chapter 13 and student loans for more information.