Type: Amicus
Date: January 29, 2021
Description: What is the proper test for determining undue hardship for the discharge of student loans.
Result: Petition denied, June 21, 2021.
Court Applies Purpose Test to Private Student Loan Discharge Case
Private loans extended to pay the debtor’s “costs of attendance” at the University of Michigan and which, taken in conjunction with the debtor’s Pell Grants, did not exceed the debtor’s education expenses, fell within section 523(a)(8)(B)’s exception to discharge. MacEwan Conti v. Arrowood Indemnity Co., No. 20-1172 (6th Cir. Dec. 14, 2020). [Read more…] about Court Applies Purpose Test to Private Student Loan Discharge Case
Med School Loans Partially Discharged after Debtor Fails to Match for Residency
Finding that the debtor’s string of very bad luck unrelieved by his concerted efforts to increase his earnings, satisfied the Brunner test, a bankruptcy court granted him a partial discharge of his student loan, reducing the debt from $440,000 to $8,291.67. Koeut v. U.S. Dept. of Ed., No. 12-7242, Adv. Proc. No. 18-90130 (Bankr. S.D. Cal. Dec. 4, 2020). [Read more…] about Med School Loans Partially Discharged after Debtor Fails to Match for Residency
Munch v. Educ. Credit Mgmt Corp., No. 18-56300 (9th Cir.)
Type: Amicus
Date: December 3, 2019
Description: Whether court misapplied the Brunner elements when addressing undue hardship in student loan case, and whether Brunner is outdated.
Result: Pending
NCBRC Seeks to Intervene in Student Loan Case and Unseal TERI Documents.
NCBRC filed a motion to unseal documents in the chapter 7 case of Mata v. National Collegiate Student Loan Trust 2006-1, et al., No. 16-30625, Adv. Proc. No. 18-1089 (Bankr. C.D. Cal.) (motion filed Nov. 15, 2019).
In the underlying adversary proceeding filed by the debtor seeking to discharge student loans, the defendant student loan securitization trusts moved for summary judgment arguing that the loans were nondischargeable under section 523(a)(8)(A)(i), which excepts from discharge “an educational benefit overpayment or loan made, insured, or guaranteed by a . . . nonprofit institution.” The trusts argued that, although they were not non-profit organizations, the loans “were made under a program funded, in whole or in part, by [TERI] a non-profit institution.”
NCBRC’s motion seeks to “unseal (1) two student loan guaranty agreements between National Collegiate Student Loan Trust 2006-1, National Collegiate Student Loan Trust 2006-4, and National Collegiate Student Loan Trust 2007-4, on the one hand, and the now-defunct The Education Resources Institute, Inc. (“TERI”), . . . and (2) two unredacted pleadings that rely on the Guaranty Agreements.” [Read more…] about NCBRC Seeks to Intervene in Student Loan Case and Unseal TERI Documents.
Bankruptcy Court May Not Enforce Discharge Order from Other District
On direct interlocutory appeal, the Fifth Circuit found that courts may not use their contempt powers to enforce discharge orders issued by other courts outside their judicial districts. The court also held that the private student loans at issue were not subject to section 523(a)(8)(A)(ii)’s nondischargeability provision because that provision applies only to educational benefits where, as in the case of grants or scholarships, the obligation to repay is conditional. Crocker v. Navient Solutions LLC, No. 18-20254 (5th Cir. Oct. 22, 2019). [Read more…] about Bankruptcy Court May Not Enforce Discharge Order from Other District
Bankruptcy Court Gets Undue Hardship Right on Remand
The Bankruptcy Court for the District of Massachusetts applied the totality-of-the-circumstances test to find that the Chapter 7 debtor was entitled to have her student loans discharged in bankruptcy notwithstanding the fact that she had substantial exempt equity in her home. Schatz v. U.S. Dept. of Ed., No. 14-30825, Adv. Proc. No. 15-3001 (Bankr. D. Mass. Oct. 2, 2019).
When the debtor, Audrey Schatz, was in her fifties she attempted to improve her earning potential by attending law school, for which she incurred $106,000 in student loans. After becoming a lawyer, however, she was unable to find satisfactory employment and was earning approximately $25,000 when she filed for bankruptcy. The bankruptcy court rejected her position that the student loan debt caused her undue hardship and found that the loans were nondischargeable under section 523(a)(8). [Read more…] about Bankruptcy Court Gets Undue Hardship Right on Remand
5th Circuit Finds No Room for Sympathy for Student Loan Debtor
In an exercise in disingenuous hand-wringing, the Fifth Circuit essentially acknowledged that its application of the Brunner test eviscerates the undue hardship avenue to discharge of student debts. In so holding, the court affirmed the denial of discharge and sent the debtor packing to perform, if not the impossible, at least the highly improbable task of finding employment. Thomas v. Dept. of Educ., No. 18-11091(5th Cir. July 30, 2019).
Vera Thomas worked at a call center for eight years at just over $11/hour when, in 2014, she developed diabetic neuropathy causing her to take numerous unpaid work days and incur extensive medical expenses. When the call center was sold in 2016, she lost her job for “company policy violations” and moved to Texas. From 2016 to 2017, Ms. Thomas acquired and lost three jobs—Whataburger, Perfumania and UPS—due to her diabetic neuropathy and consequent inability to stand for any length of time. By the time she filed chapter 7 bankruptcy, she was in her 60s and living off public assistance and private charity. Her monthly expenses were over three times her monthly income. After obtaining her bankruptcy discharge, Ms. Thomas sought to have her student loans discharged. The bankruptcy court, noting that in fifteen years on the bench it had never granted undue discharge of student loans, found that Ms. Thomas did not meet the standard for undue hardship discharge. The district court affirmed.
[Read more…] about 5th Circuit Finds No Room for Sympathy for Student Loan DebtorHard View of Religious Tithing (and other things) in Student Loan Discharge Case
In a bad-facts-make-bad-law situation, the Southern District of New York affirmed the denial of student loan discharge where the chapter 7 debtor sought to have his religious contributions deducted from his income, and, unfortunately, in so holding, the district court went beyond the bankruptcy court holding to add some unpleasant dicta of its own. In re Lozada, No. 18-11643 (S.D.N.Y. June 12, 2019).
[Read more…] about Hard View of Religious Tithing (and other things) in Student Loan Discharge CaseAccrued Interest on Student Loan Discharged as Undue Hardship
A Kansas bankruptcy court did not err in granting the debtor a discharge of the accrued interest on her student loans where she met the Tenth Circuit’s flexible version of the Brunner test, and the court has equitable power to grant less than a complete discharge. ECMC v. Metz, No. 18-1281 (May 2, 2019).
The debtor, age 59, was never in default on her student loans. Though she was continuously employed over the repayment period, the amount she owed grew over time from the original loan amount of $16,613.73 to $67,277.88. Beginning in 2001, she filed three Chapter 13 bankruptcies and made all payments under her plans, receiving a discharge in the first two. In the third and current bankruptcy, the debtor sought to discharge her consolidated student loan. The bankruptcy court found undue hardship but discharged only the accrued interest on the debt. The student loan creditor, ECMC, appealed. The debtor filed a cross-appeal seeking to have the entire debt discharged. NCBRC filed an amicus brief on behalf of the NACBA membership in support of the debtor. [Read more…] about Accrued Interest on Student Loan Discharged as Undue Hardship