Bankruptcy Tutor
Dec 2, 2009
Four years after Francisco Espinosa took out student loans to attend an Arizona trade school, he had not advanced beyond his job as an airline ramp agent in Phoenix and faced $13,250 in student debt. He declared bankruptcy, and a judge allowed him to pay off part of the loan and wipe out the remaining debt.
Tuesday, Supreme Court justices considered Espinosa's case in a closely watched dispute that could affect debtors and creditors nationwide when student loans cannot be repaid.
CASE LOG: Take a look at the major cases facing the court this term
Federal law says no student loan may be wiped out through bankruptcy unless the student proves an "undue hardship" in a court hearing with the institution that loaned the money. Notifying the creditor through a bankruptcy petition is usually not enough.
The idea, Justice Department lawyers say, is that the elimination of student debt should not be a matter of routine bankruptcy. Siding with Espinosa's creditor, they note the Department of Education reinsures student loans to guarantee they get repaid. Congress feared that without such guarantees and a difficult process for unloading debt, most lenders would refuse to fund higher education.
The justices struggled with the obligations of each side of a loan. Many, including Justices Ruth Bader Ginsburg and Anthony Kennedy, suggested they sought a balance between allowing debtors to readily discharge loans and requiring formal hardship hearings even when a creditor accepts a debtor's bankruptcy plan.
A lower U.S. appeals court ruled last year that in Espinosa's case it was enough that the creditor, United Student Aid Funds, was alerted to his bankruptcy petition in 1992 and did not object at the time to the bankruptcy plan. The decision by the U.S. Court of Appeals for the 9th Circuit, based in San Francisco, would open the door to easier elimination of student debt.
Appealing the ruling, lawyer Madeleine Wanslee for United Student Aid Funds, a large non-profit corporation, said student loans — like several other categories, including child support — cannot be eliminated without a hardship hearing. Congress, not individual judges, should set the rules, she said.
Toby Heytens, assistant U.S. solicitor general, agreed, "Congress has an overriding policy that student loans should not be discharged unless there is a determination that this is the extraordinary case" because there were 374,000 bankruptcy filings from individuals last year alone.
Representing Espinosa, lawyer Michael Meehan argued that once a bankruptcy judgment has become final, it cannot be challenged based on any error a judge may have made.
Some justices, including Antonin Scalia and Sonia Sotomayor, expressed the view that the bankruptcy judge erred, yet there appeared no consensus on the creditor's recourse years later.
Scalia questioned whether judges might ignore the usual rule of a hardship hearing out of sympathy for a student debtor. He referred to a judge who might have "a soft heart for student loan debts" and say, "Let's give this kid a break."
source: http://www.usatoday.com/news/washing...nt-loans_N.htm
Four years after Francisco Espinosa took out student loans to attend an Arizona trade school, he had not advanced beyond his job as an airline ramp agent in Phoenix and faced $13,250 in student debt. He declared bankruptcy, and a judge allowed him to pay off part of the loan and wipe out the remaining debt.
Tuesday, Supreme Court justices considered Espinosa's case in a closely watched dispute that could affect debtors and creditors nationwide when student loans cannot be repaid.
CASE LOG: Take a look at the major cases facing the court this term
Federal law says no student loan may be wiped out through bankruptcy unless the student proves an "undue hardship" in a court hearing with the institution that loaned the money. Notifying the creditor through a bankruptcy petition is usually not enough.
The idea, Justice Department lawyers say, is that the elimination of student debt should not be a matter of routine bankruptcy. Siding with Espinosa's creditor, they note the Department of Education reinsures student loans to guarantee they get repaid. Congress feared that without such guarantees and a difficult process for unloading debt, most lenders would refuse to fund higher education.
The justices struggled with the obligations of each side of a loan. Many, including Justices Ruth Bader Ginsburg and Anthony Kennedy, suggested they sought a balance between allowing debtors to readily discharge loans and requiring formal hardship hearings even when a creditor accepts a debtor's bankruptcy plan.
A lower U.S. appeals court ruled last year that in Espinosa's case it was enough that the creditor, United Student Aid Funds, was alerted to his bankruptcy petition in 1992 and did not object at the time to the bankruptcy plan. The decision by the U.S. Court of Appeals for the 9th Circuit, based in San Francisco, would open the door to easier elimination of student debt.
Appealing the ruling, lawyer Madeleine Wanslee for United Student Aid Funds, a large non-profit corporation, said student loans — like several other categories, including child support — cannot be eliminated without a hardship hearing. Congress, not individual judges, should set the rules, she said.
Toby Heytens, assistant U.S. solicitor general, agreed, "Congress has an overriding policy that student loans should not be discharged unless there is a determination that this is the extraordinary case" because there were 374,000 bankruptcy filings from individuals last year alone.
Representing Espinosa, lawyer Michael Meehan argued that once a bankruptcy judgment has become final, it cannot be challenged based on any error a judge may have made.
Some justices, including Antonin Scalia and Sonia Sotomayor, expressed the view that the bankruptcy judge erred, yet there appeared no consensus on the creditor's recourse years later.
Scalia questioned whether judges might ignore the usual rule of a hardship hearing out of sympathy for a student debtor. He referred to a judge who might have "a soft heart for student loan debts" and say, "Let's give this kid a break."
source: http://www.usatoday.com/news/washing...nt-loans_N.htm
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Strange. It appears to be a filter on the word "l a w". That word is being replaced with a blank.
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