The Aftermath of United Student Aid Funds v. Espinosa - Student Loan Dischargeability Tango
On March 23, 2010, the Supreme Court ruled that undue hardship is not a limit on the bankruptcy court's jurisdiction and that failure to make undue hardship determination before confirming a chapter 13 plan that discharged a student loan debt could not be overturned under Rule 60(b)(4) years after the confirmation if the lender had actual notice.
Debtor Espinosa had filed a chapter 13 bankruptcy listing in his plan full discharge of his student obligation upon full repayment of the principle. Lender United Student Aid Funds received actual and never objected to the confirmation of the plan or requested an adversary proceeding. Thereafter the plan was confirmed and Debtor Espinosa completed his plan payments and received a discharge.
In 1997 United Student Aid Funds after discharge reinitiated collection effort against Debtor Espinosa for the unpaid balance. Debtor Espinosa asked the bankruptcy court to enforce its 1997 discharge order; United opposes and requested the confirmation be voided.
STEVEN'S TAKE
As a consumer bankruptcy attorney, I have spent my career representing thousands of consumers and people who find themselves in times of financial hardship; I cannot help but cheer for this decision regardless of its legal basis or practicability. After all, there is now one additional avenue for consumers to discharge its typically non-dischargeable student loan obligation. That being said, the Supreme Court in its decision was very careful to narrowly construe its reasoning thereby limiting the usefulness of the Espinosa case in all practical sense.
Whether or not bankruptcy attorneys can utilize the Espinosa case to help clients discharge student loan interests and penalties will again be case by case and more often then not a futile attempt but nevertheless an additional avenue to consider. If you have bankruptcy questions or needs contact us as your first and last stop to your new financial beginning.