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SCOTUS rules against student-loan company

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The Supreme Court of the United States clarified March 23 the discharge of federal student-loan debt in bankruptcy involving an Indianapolis-based education loan guarantor.

In United Student Aid Funds, Inc. v. Francisco J. Espinosa, No. 08-1134, the SCOTUS unanimously ruled against United Student Aid Funds' attempt to collect interest from federally guaranteed student loans discharged in Bankruptcy Court. Francisco J. Espinosa had four student loans and claimed those as his only debt when he filed for Chapter 13 bankruptcy. The Bankruptcy Court accepted his plan to repay only the principal owed, without making an undue hardship finding or having an adversary proceeding as required by Bankruptcy Code.

USA Funds received notice of the plan from the court clerk but didn't object to or appeal once it was approved. Espinosa paid off the principal per the terms of the plan, and the interest was discharged. Three years later, USA Funds attempted to collect the unpaid interest. Espinosa reopened his case asking for an order to prohibit collection of his discharged debts. USA Funds filed a cross-motion under Federal Rule Civil 60(b)(4) to set aside the order confirming the plan. The 9th Circuit Court of Appeals affirmed the Bankruptcy Court. The 9th Circuit found the Bankruptcy Court committed a legal error by not finding undue hardship in an adversary proceeding, but that didn't justify setting aside the confirmation order under Rule 60(b). This was in contrast with rulings in the 2nd and 10th Circuit Courts.

The SCOTUS granted transfer to decide whether an order that confirms the discharge of a student-loan debt without an undue hardship finding or adversary proceedings, or both, is a void judgment under Rule 60(b)(4).

USA Funds claimed it's entitled to relief because it didn't receive adequate notice of the proposed discharge of the loans. But the company received actual notice of the filing and contents of Espinosa's plan, even if Espinosa didn't serve the company with a summons and complaint, wrote Justice Clarence Thomas.

USA Funds argued that an order confirming a plan to discharge student-loan debt without an undue hardship finding is beyond the court's authority and therefore void. The justices weren't persuaded that not finding undue hardship in accordance with federal statute is on par with the jurisdictional and notice failings that define void judgments that qualify for relief under Rule 60(b)(4).

The Bankruptcy Court did commit a legal error by not finding undue hardship before confirming Espinosa's plan, but the order is still enforceable and binding because USA Funds had notice of the error and didn't timely object or appeal, the justices held.

The justices ruled the 9th Circuit went too far in holding Bankruptcy courts must confirm a plan proposing the discharge of student-loan debt without a determination of undue hardship in an adversary proceeding unless the creditor timely raises a specific objection. Discharging student-loan debt under Chapter 13 without determining undue hardship violates Bankruptcy Code. Courts must make an independent determination before a plan is confirmed, even if the creditor fails to object, or the debtor and creditor agree that there is an undue hardship, wrote the justice.

USA Funds said in a statement that the ruling provides the clarification the company has been seeking, given the disagreement among courts on the issue. USA Funds also said the ruling protects taxpayers by requiring the showing of undue hardship before discharging student-loan debt and puts Bankruptcy courts on notice regarding the law's requirements for discharge.

"Importantly, the opinion also includes strong language that puts debtors and their attorneys on notice that they will face penalties if they propose bankruptcy plans that attempt to skirt the undue hardship requirement of the federal statute," said the company.

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  1. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  2. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  3. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  4. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  5. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

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