U.S. Supreme Court
Supreme Court to Consider Abbreviated Discharge of Student Loan
Posted Jun 15, 2009 11:25 AM CST
By Debra Cassens Weiss
The U.S. Supreme Court has agreed to decide whether student loans can be dismissed in bankruptcy absent proof that repayment constitutes an “undue hardship.”
Debtor Francisco Espinosa declared a discharge of part of his student debt in his bankruptcy plan rather than proving undue hardship in an adversarial hearing, as required by the bankruptcy rules. One issue is whether the order discharging the debt is void, according to the petition for certiorari (PDF posted by SCOTUSblog). A second issue is whether Espinosa’s notice to United Student Aid Funds Inc.—mailed to the post office box where he sent loan payments—was sufficient.
Espinosa claims the bankruptcy agreement is final and cannot be reopened, the Associated Press reports. He agreed to pay $13,250 on his four student loans. United Student Aid says he still owed the full amount, $17,832.
The San Francisco-based 9th U.S. Circuit Court of Appeals had sided with Espinosa. Five other federal appeals courts have reached the opposite conclusion “on indistinguishable facts,” the cert petition says.
The case is United Student Aid Funds v. Espinosa.
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Comments
B. McLeod
Jun 15, 2009 11:23 PM CST
If anyone who concentrates in bankruptcy has a moment to comment, I would be interested in the standards that determine when it constitutes an “undue hardship” for a debtor to repay money that the debtor borrowed and spent.
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Mac
Jun 16, 2009 9:41 AM CST
It was always my understanding that student loans could not be discharged in bankruptcy. Am I wrong? Which loans can be discharged, federal or private or both?
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Darren A. Fish
Jun 19, 2009 5:32 PM CST
All student loans can be discharged. It is a very well kept secret that Federal Loans can indeed be discharged but the hurdle is quite difficult to reach. Basically put, the “undue hardship” must entail having to make a payment on school loans putting your life, health or welfare at risk. A perfect example is where a student completes law school and then has a critical medical issue result in that newly licensed attorney from practicing law. The case which led to this result was involving lawyer who found herself unable to practice law else the physical, mental and emotional stress or effect would likely lead to her death. Unable to practice law and find employment that would allow her to abide by her doctors restrictions and the fact lawyers tend to have difficult times finding jobs without extreme stress involved, she was faced with having to lose her home, be denied any tax relief and face the continued burden of having school loan reps hounding her. The Court essentially stated, without bankruptcy discharging her loans would in effect be a death sentence at worst and impoverishing her leading to a life of living on the street at best. I believe the USSC refused to address the matter on appeal.
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B. McLeod
Jun 20, 2009 12:42 AM CST
Thank you for taking the time to post. That is both interesting and potentially useful to know.
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