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Student Loans in Bankruptcy – Hardship Discharge

hardship-discharge-bankruptcyThe 2010 case of Espinosa the Supreme Court decided that perfect notice was not necessary and that in some cases a student loan can be hardship discharged in bankruptcy without first determining undue hardship in an adversary proceeding if a bankruptcy court order confirming a hardship discharge becomes final. In this case the student loan creditor’s receipt of actual notice in this case under the Chapter 13 Bankruptcy plan “more than satisfied” its due process rights under Mullane v. Central Hanover Bank & Trust Co.

When A Student Loan Becomes a Hardship

A court always has to determine whether a student loan hardship exists even if the parties agree to a discharge. The Bankruptcy court must at least make an inquiry into whether the student loan is a hardship. But if a student loan lender has had actual notice and a bankruptcy court issues an order discharging the debt then a summons and adversary proceeding for a hardship discharge will not always be required. A student loan creditor cant sit back and enjoy the fruits of being paid in a Chapter 13 bankruptcy according to terms without objecting to a hardship discharge and then later complain.

United Student Aid Funds claimed that because student loans are non-dischargeable, they can only be discharged by an adversary proceeding.  However the court reasoned Student Loans are sometimes discharged. Certain other non dischargeable debts such as child support, court fines, and drunk driving accidents, are never discharged. (Although they may be repaid in a Chapter 13 as Epinosa’s student loans were)

When a court confirms a discharge of a student loans even without an adversary proceedings — especially when the student loan creditor has not objected —then such an order should be regarded as final and are only appealable within time limits. The Court’s decision in this case was especially important as another crack in the armor of student loan hardship discharge defenses. Student loan Bankruptcy hardship discharges are hard but not impossible to get. Be sure to see how to file for a student loan bankruptcy on our main website.