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Student Loan Debt - Dischargeable In Chapter 13 Bankruptcy?

Posted By admin || 12-Nov-2008

Anyone who has ever taken out a student loan is quite aware of the fact that student loan debt is next to impossible to discharge in bankruptcy unless the debtor can prove "undue hardship." But the 9 th Circuit Court ruled in October that student loan debt could be discharged through the confirmation of a Chapter 13 plan if the creditor is given notice of the plan and does not object, (Espinosa v. United Student Aid Funds Inc., No. 06-16421, 9th Cir. 10/02/08).

The court stated:

"Our long-standing circuit law holds 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, Pardee, 193 F.3d at 1086, and that such notice is not constitutionally inadequate. In re Gregory, 705 F.2d at 1123. We find it highly unlikely that a credi­tor whose business it is to administer student loans will be misled by the customary bankruptcy procedures or somehow be bamboozled into giving up its rights by crafty student debtors. If the creditor fails to object, it is doubtless the result of a careful calculation that this course is the one most likely to yield repayment of at least a portion of the debt. In such circumstances, bankruptcy courts have no business standing in the way. Cases such as In re Webber and In re Patton are, to that extent, overruled."

Although this ruling should not be considered an open door for all who want to discharge student loans in bankruptcy; it is a long overdue relief for debtors who are burdened by massive student loan debt. If the Chapter 13 bankruptcy trustee has examined the debtor's ability to repay his/her student loan debt and has determined that the balance of the student loan should be discharged in Chapter 13 bankruptcy, then it is up to the creditor to accept or dispute the ruling. No special provisions should be given to student loan creditors who do not follow bankruptcy proceedings and challenge discharge rulings according to the law.

Categories: Student Loans
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