POST BAPCPA:
In re Sanborn,
(Bkrtcy.D.Mass.)
July 11,
2010: Discharge - Single mother suffering from chronic
fatigue syndrome was not entitled to "undue hardship"
discharge of student loans. Neither a Chapter 7 debtor's
medically diagnosed chronic fatigue syndrome/myalgic
encephalomyelitis (CFS/ME), which at present prevented her
from working and limited her to monthly income of $1,211 in
public assistance benefits, nor the fact that she was a
single mother charged with the care of a young child
entitled the debtor to an "undue hardship" discharge of her
$27,674 in student loan debt. Even the debtor's treating
physician acknowledged that the debtor's present inability
to work would wax and wane, and might perhaps be controlled
through the use of drugs that the debtor had declined to
take out of concern for the possible side effects. The
debtor had obtained a certificate in medical assistance,
that qualified her for lucrative employment in a variety of
medical settings, and her child would not need as much care
as he grew older. Finally, repayment options, such as the
income contingent repayment plan (ICRP), provided the debtor
with the flexibility needed to deal with what would likely
be her changing financial circumstance.
United Student Aid Funds,
Inc. v. Espinosa, 559 U.S. ___ (2010) (3/23/10). Supreme
Court Refuses to Void Confirmation of Plan Discharging
Student Loan
In that case Espinosa (9th Cir),
a chapter 13 debtor, sought to discharge the accrued
interest on his student loan while paying the principle
through the plan. He did not initiate an adversary
proceeding to determine undue hardship, but included the
student loan in his plan. Although the student loan
creditor received actual notice of the plan, it did not
object to the partial payment. The bankruptcy court
confirmed the plan, the debtor complied with it, and the
debtor was discharged in 1997. Several years later, USAF
attempted to collect the unpaid interest on the loan.
Espinosa sought to have the bankruptcy court enforce the
discharge and USAF counterclaimed with a motion to void
confirmation of the plan under Fed. R. Civ. P. 60(b)(4).
The Supreme Court found that
Rule 60(b) relieves a party of a final judgment only in the
rare circumstance that the “judgment is premised either on a
certain type of jurisdictional error or on a violation of
due process that deprives a party of notice or the
opportunity to be heard.” The Court began its analysis with
the finding that the statutory requirements of undue
hardship and the initiation of an adversary proceeding are
not jurisdictional. The issue then, was whether USAF
received adequate notice to satisfy due process. The Court
found that the existence of actual notice, albeit not the
type of notice proscribed by the bankruptcy rules, was
sufficient to satisfy due process.
The Court addressed USAF and the
Amicus, U.S. government’s, argument that the bankruptcy
court’s order is void because it went beyond the court’s
power. Although the Court found the failure to comply with
§§ 523(a)(8) and 1328(a) before confirming the plan was
“legal error,” that error did not rise to the level
necessary to void a final judgment. This was especially so
as the creditor had actual notice and was not permitted to
“sleep on its rights.”
The Court disagreed with the
aspect of the Ninth Circuit’s decision, however, insofar as
it held that a bankruptcy court could confirm a plan which
would discharge a student loan without an adversary
proceeding so long as the creditor did not object.
In re Harding, 423 B.R. 568
(Bankr. S.D. Fla. 2010). It does not allow different
classification of the nonpriority student loan, but it
issues an injunction against penalties.
In the
Matter of: Coleman, No. 06-16477
U.S. 9th Circuit Court of Appeals, August 01, 2008
"[U]ndue hardship" determinations, whereby bankruptcy courts
decide whether student loans qualify for discharge, can be
ripe in a Chapter 13 case substantially in advance of plan
completion. Since
graduating from college, Coleman has been irregularly
employed as a substitute teacher and art teacher, and was
recently laid off in March of 2005. Just under a year after
the plan was confirmed, Coleman sought a determination that
it would constitute an undue hardship under 11 U.S.C. §
523(a)(8) for her to repay her student loans, and that her
student loans should therefore not be excepted from
discharge. Educational Credit moved to dismiss for lack of
subject matter jurisdiction on ripeness grounds. The
bankruptcy court denied the motion, In re Coleman,
333 B.R. 841 (Bankr. N.D. Cal. 2005), and the district court
affirmed the decision of the bankruptcy court. We
affirm. Read
more...
WARNING: PRE- BAPCPA:
Educ. Credit Mgmt. Corp.
v. Mason (09/28/06 - No. 04-35999) (9th Cir.Ct.App)
Partial discharge of government-insured student loans is
reversed where the debtor had not made a good effort to pay
back the loans since he had not maximized his income or made
adequate efforts to obtain full-time employment.
Read opinion.
Educ. Credit Mgmt. Corp. v. Nys,
No. 04-16007 (9th Cir. April 26, 2006)
A bankruptcy panel's reversal of a ruling against a creditor
on her adversary complaint in bankruptcy court to have her
student loans discharged is affirmed where the bankruptcy
court erred in requiring the debtor to show exceptional
circumstances beyond the inability to pay in the present and
a likely inability to pay in the future. "Has the
Debtor shown that her inability to pay will likely persist
throughout a substantial portion of her loans' repayment
period?" [(1)] Serious mental or physical disability
of the debtor or the debtor’s dependents which prevents
employment or advancement; [(2)] The debtor’s obligations to
care for dependents; [(3)] Lack of, or severely limited
education; [(4)] Poor quality of education; [(5)] Lack of
usable or marketable job skills; [(6)] Underemployment;
[(7)] Maximized income potential in the chosen educational
field, and no other more lucrative job skills; [(8)] Limited
number of years remaining in [the debtor’s] work life to
allow payment of the loan; [(9)] Age or other factors that
prevent retraining or relocation as a means for payment of
the loan; [(10)] Lack of assets, whether or not exempt,
which could be used to pay the loan; [(11)] Potentially
increasing expenses that outweigh any potential appreciation
in the value of the debtor’s assets and/or likely increases
in the debtor’s income; [(12)] Lack of better financial
options elsewhere.
http://caselaw.lp.findlaw.com/data2/circs/9th/0416007p.pdf
Brunner
v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner), 46 B.R. 752,
753- 55 (Bankr. S.D.N.Y. 1985), The district court had
thoroughly analyzed the limited legislative history
pertaining to the “undue hardship” requirement.
SAXMAN v. EDUC. CREDIT MGMT.
CORP., No. 01-35620 (9th Cir. April 14, 2003)
Bankruptcy courts may partially discharge an educational loan
pursuant to their equitable authority under 11 U.S.C. section
105(a).
http://caselaw.lp.findlaw.com/data2/circs/9th/0135620p.pdf
IN RE CHAMBERS (11/04/03 - No.
03-1557) (7th Cir) In a Chapter 7 declaratory judgment action,
summary judgment to plaintiff is affirmed where plaintiff's
unpaid balance on a student account does not meet the
definition of an educational loan under section 523(a)(8) and
was therefore properly discharged.
http://caselaw.lp.findlaw.com/data2/circs/7th/031557p.pdf
"Accordingly, applying this
standard, the bankruptcy court found no evidence of intent by
either party to enter into a loan arrangement; rather, the
debt arose from Ms. Chambers’ failure to pay the tuition and
expenses when due."
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