The U.S. Supreme Court began hearing today the case involving a debtor whose student loans were discharged in a Chapter 13 bankruptcy—though possibly against the U.S. Bankruptcy Code.
Student loans are notorious for being difficult to discharge in bankruptcy, even in a Chapter 13 bankruptcy. In order to have student loan debt eliminated, a debtor must prove undue hardship.
In the case before the Supreme Court, the debtor, Francisco Espinosa, was allowed to enter a Chapter 13 plan without ever proving undue hardship to the bankruptcy court, according to a story on National Public Radio.
The Bankruptcy Case
In 1988, Espinosa was a baggage handler for America West Airlines when he began taking computer drafting classes at a technical school. Espinosa took out four student loans totaling over $13,000 from United Student Aid Funds.
After earning his degree, Espinosa was unable to find work in the computers field, and continued working at America West. However, that company was facing its own financial strain, and began cutting salaries. In 1992, Espinosa, a college graduate earning $6 an hour, filed bankruptcy.
According to the NPR story, Espinosa agreed to repay the full amount of the student loan debt through a three-to-five year Chapter 13 plan—but not the $4,000 of interest accrued on the loan. USAF was notified several times of the terms of the plan, and never objected to the case.
In 1997, the bankruptcy court declared Espinosa's debt repaid, and issued him a debt discharge.
However, two years later, USAF issued a lien on Espinosa's tax return for the unpaid interest. USAF claimed that the bankruptcy plan was illegal—11 years after the court confirmed it—because of the undue hardship requirement.
Undue Hardship Hearing Never Held
The student loan company argues that the bankruptcy court should have held a special hearing to determine whether Espinosa's situation qualified as an undue hardship, and should have summonsed USAF to appear in court. Because the hearing was never held, undue hardship was never established, and the loan should not have been dischargeable, USAF argued.
Espinosa's attorney has argued that USAF was properly notified and did not raise any objections at the time. A federal appeals court agreed.
Now it's up to the Supreme Court to decide just when a creditor can raise objection to a Chapter 13 bankruptcy plan—and when the can still collect on debts.
Tags: bankruptcy, chapter 13 bankruptcy, student loans, Supreme Court
This entry was posted on Tuesday, December 1st, 2009 at 2:58 pm and is filed under Bankruptcy News and Events. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
[...] This post was mentioned on Twitter by Total Bankruptcy, Home Loan For Less. Home Loan For Less said: Student Loan Bankruptcy Case Argued in Supreme Court | The … http://bit.ly/7AZII5 [...]
[...] the original: Student Loan Bankruptcy Case Argued in Supreme Court | The … Share and [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
I am an adult with Autism who has been illegally discriminated against by California and Florida refusing to admit me to the Bars of those states because of my Autism. My law school did not disclose to me that I would be refused Bar admission for 20 years. My student loans were almost $100,000, and I was a single Mom. Adults with Autism are not getting the financial supports and services funding we require. Adults with Autism have appx. a 96 % unemployment rate, and most of us are not able to be independent without having our caretaking (meal preparation and other things) paid for which we cannot afford, either. Yet totally crazy abusive decisions are coming out of these bankruptcy saying there’s “no undue hardship” — they did it to me under the above facts. I have never been able to regain any real financial stability due to the bankruptcy court and student loan guarantor Autism abuse, have remained without health care insurance for over 20 years when Autism typically costs at least $130,000 annual just for Autism therapies, and I have gone up to foour days sometimes in the past without any food.
I guess that’s “not an undue hardship.” Welcome to Thirteen Amendment Autism slavery and starvation on American steets.
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] news by Chris Kramer Practical Tips To Repay Your Student Loan Debt [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … Share and Enjoy: [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
[...] Student Loan Bankruptcy Case Argued in Supreme Court | The … [...]
Its sad to here that there are cases like this involving student loans. I am writing articles about college loan consolidation to inform people regarding student loans