• Creditors with Education Receivables should Review Chapter 13 Cases Carefully
  • February 26, 2015 | Author: Matthew G. Burg
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cleveland Office
  • Since United Student Aid Funds, Inc. v. Espinosa [1] was decided by the United States Supreme Court in 2010, many education loan creditors have begun reviewing Chapter 13 plans to see if there is any provision specifically attempting to discharge any of the otherwise non-dischargeable education loan. How specific does that provision need to be?

    In In Re Haney [2], a debtor filed a Chapter 13 bankruptcy listing a student loan creditor as her only creditor in her petition. Her plan proposed that creditors holding allowed unsecured claims “to the greatest extent possible from payments made by the debtor over a period sixty months.” Her plan was confirmed without objection. The educational loan claim was timely filed, and was allowed. The education loan was not paid off in the debtor’s Chapter 13 bankruptcy. When the creditor attempted to collect the remaining debt owed, the court held that the remainder had not been discharged in the debtor’s bankruptcy. In so holding, the court noted that the debtor’s plan did “not contain an express provision purporting to discharge the debtor’s student loan debt.” The bankruptcy court noted that the plan in the Espinosa case “contained an express provision proposing to pay the principal of the student loan debt and discharge the accrued interest.”

    However, that is just one bankruptcy court’s ruling. Other bankruptcy judges may not read the Espinosa case as requiring such a specific plan provision, specific to a creditor’s student loan, to consider the debt discharged. Espinosa can be read differently - that a general provision, specifically discharging any unsecured debt that is not paid through the plan, operates to discharge student loan debt even without an adversary proceeding being filed.

    In this situation, if an education loan creditor attempts to collect on that debt, the creditor may have violated the discharge injunction, subjecting itself to sanctions. A third-party debt collector may violate the Fair Debt Collections Practices Act when it attempts to collect on such a debt. Class action demands may be made if there is no procedure in place to safeguard against this. If there is a question in either the debtor’s plan, or the confirmation order, or the discharge order, as to wording that may be interpreted to discharge your education loan receivable, it may be wise to have your bankruptcy attorney or general counsel involved at that time. Filing an adversary proceeding in the bankruptcy court requesting declaratory judgment, is a way to bring some certainty to the question of whether your education loan receivable was discharged in the bankruptcy. Your bankruptcy attorney may also be able to negotiate repayment terms through the debtor’s bankruptcy attorney, to avoid litigating further.

    [1] United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010)
    [2] In Re Haney 97-70937, ADV. CASE NO. 11-7024, 2011 Bankr. LEXIS 4746