Student Debt

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Walker v. Sallie Mae Servicing Corp.(ECMC) (In re Walker), 427 B.R. 471 (B.A.P. 8th Cir. (Minn.) 4/9/10) (Federman, J.).

Case Summary:

Student Loan Discharge Action is Not an Improper Collateral Attack on Discharge Order

The Eighth Circuit BAP affirms the bankruptcy court’s order discharging a student loan as an undue hardship, even though the adversary proceeding was brought three years after the debtor’s discharge. ECMC argued that once a discharge order is entered, the debtor may only use the grounds set out in Rules 59 and 60 to modify the discharge order and obtain discharge of a student loan. The BAP disagrees, citing §350(b) that allows a case to be reopened to accord relief to the debtor, and Rule 4007(b) that allows a complaint (other than under §523(c)) to be filed “at any time.” The BAP also notes that a general, one-line discharge order cannot be construed as a determination that a student loan does not impose an undue hardship. The BAP discusses numerous Eighth Circuit and other cases where the courts have discharged student loans based on post-petition change in circumstances, and even where there was a prior ruling that the debt was not dischargeable. ECMC also objected to the trial court consideration of circumstances at the time of trial rather than at the time of discharge three years prior. The BAP rejects this argument, noting that in determining undue hardship, bankruptcy courts are required to predict future circumstances, so it would make no sense to ignore those very circumstances in existence at the time of trial.

Reaching the merits, there appears to have been little dispute that the debtor cannot work, with five children including two sets of twins, two of whom are autistic and require special time and support. ECMC argued that the debtor and her husband were able to finance a new, fully-loaded SUV and an addition to their home, and should be able to afford loan payments as well. The BAP, however, finds no error in the court’s determination that even without those two monthly expenses, debtors’ expenses exceed their income.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.