Managing Student Loans in Bankruptcy

Wednesday, May 4, 201612:00 PM - 1:15 PM

U.S. District Courthouse - Jury Lounge333 W. Broadway

San Diego, CA 92101

Presenters

• The Honorable Louise DeCarl Adler, Bankruptcy Judge, Southern Dist. Of CA

• D.J. Rausa, Attorney at Law• Richard Stevenson, Staff Attorney, Chapter 13

Trustee

The Gravity of Student Loan Debt:

• 1.3 Trillion Dollars in outstanding student loans

• Default rate, 20%• This problem is not going anywhere.• 40% of outstanding student loan debt are not

in repayment status.• Absent a complete overhaul of the system, it

will only get worse

Major Causes of the Student Loan problem

The cost of higher educationFree flow of Federal Student AidHistoric availabilityLack of Checks and Balances by the Dept.

Ed.Entry of Private student loan lendersAbuses by For Profit colleges

Private or Federal Student Loans. How do you know which is which?

Obtain the National Student Loan Data System Report (Fed Only)

Federal Student Aid IDCredit ReportServicer letters

Special Notes for the Consumer Attorney

• Do not rely on servicer information: Same servicer could, and often do, service both Fed. and Private Loans.

• Loans are place “on hold” during bankruptcy.• Interest accrues, then is capitalized into principle upon

Discharge. NSLDS report will give interest rate.• Issues of Concern: • 0% Chapter 13 plan, 3-5 years. Look at the amount of

Student Loan Debt.• Private Lenders call the loans due upon Discharge of

borrower or co-borrower, even if current with payments.

Chapter 7

Dischargeability Actions 11 USC 523 (a)(8)Undue Hardship: Brunner TestBrunner v. New York State Higher Educ. Servs.

Corp., 831 F.2d 395 (2d Cir. 1987).Private Student Loans Only:• Statute of Limitations. CCP 337• Standing: The collateralization of Private Student Loans• Title IV School, In Re Nunez 527 B.R. 410 (2015)

Chapter 13

Dischargeability Actions 11 USC 523 (a)(8)Statute of Limitations.Standing: The collateralization of Private Student LoansTitle IV Schools: In Re Nunez 527 BR 410 (Bankr. Court D.

Oregon 2015Proof of Claim Issues: ObjectionsStale Claims: Crawford v. LVNV FUNDING, LLC., 758 F.3d

1254 Court of Appeals, 11th Circuit 2014FDCPA/Rosenthal

Is Brunner Eroding in the 9th Cir.?

Saxman v. Educ. Mgmt. Corp. (In re Saxman), 325 F.3d 1168 (9th Cir. 2003)

Hedlund v. Educational Resources Institute, Inc. 718 F. 3d 848 - Court of Appeals, 9th Circuit 2013

In re Roth, 490 B.R. 908 Bankr. Appellate Panel, 9th Circuit 2013

Totality of the Circumstances 8th Cir.

• Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549 (8th Cir. 2003);

• Walker v. Sallie Mae Servicing Corp. (In re Walker), 650 F.3d 1227 (8th Cir. 2011).

1st Cir.

Murphy v. U.S. Dept. of Ed. 1st Cir. Court of Appeals 14-1691 (2015)

Nash v. Conn. Student Loan Found. (In re Nash), 446 F.3d 188 (1st Cir 2006).

Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), 435 B.R. 791 (1st Cir. BAP 2010).

Treatment of Federal Student Loans in a Chapter 13 Plan

Separate Classification 1322 (b)(1): Because Loans are place “on hold” during bankruptcy.

Excluding Icome Driven Repayment: Why is this so important?

Continuous voluntary payments for Rehabilitation.TeachersPublic service loan forgivenessMilitaryUnfair Discrimination: In Re Wolff, 22 BR 510 (9th Cir.BAP 1981)

Treatment of Federal Student Loans in a Chapter 13 Plan (cont)

• 1322(b)(5) Curing of Default and Maintenance on Long Term DebtUS Department of Education does not have

current policy.Will take separate Order of the Court.