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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. A traditional parade of attorneys? Really Evansville? Y'all need to get out more. When is the traditional parade of notaries? Nurses? Sanitation workers? Pole dancers? I gotta wonder, do throngs of admiring citizens gather to laud these marching servants of the constitution? "Show us your billing records!!!" Hoping some video gets posted. Ours is not a narcissistic profession by any chance, is it? Nah .....

  2. My previous comment not an aside at court. I agree with smith. Good call. Just thought posting here a bit on the if it bleeds it leads side. Most attorneys need to think of last lines of story above.

  3. Hello everyone I'm Gina and I'm here for the exact same thing you are. I have the wonderful joy of waking up every morning to my heart being pulled out and sheer terror of what DCS is going to Throw at me and my family today.Let me start from the !bebeginning.My daughter lost all rights to her 3beautiful children due to Severe mental issues she no longer lives in our state and has cut all ties.DCS led her to belive that once she done signed over her right the babies would be with their family. We have faught screamed begged and anything else we could possibly due I hired a lawyer five grand down the drain.You know all I want is my babies home.I've done everything they have even asked me to do.Now their saying I can't see my grandchildren cause I'M on a prescription for paipain.I have a very rare blood disease it causes cellulitis a form of blood poisoning to stay dormant in my tissues and nervous system it also causes a ,blood clotting disorder.even with the two blood thinners I'm on I still Continue to develop them them also.DCS knows about my illness and still they refuse to let me see my grandchildren. I Love and miss them so much Please can anyone help Us my grandchildren and I they should be worrying about what toy there going to play with but instead there worrying about if there ever coming home again.THANK YOU DCS FOR ALL YOU'VE DONE. ( And if anyone at all has any ideals or knows who can help. Please contact (765)960~5096.only serious callers

  4. He must be a Rethuglican, for if from the other side of the aisle such acts would be merely personal and thus not something that attaches to his professional life. AND ... gotta love this ... oh, and on top of talking dirty on the phone, he also, as an aside, guess we should mention, might be important, not sure, but .... "In addition to these allegations, Keaton was accused of failing to file an appeal after he collected advance payment from a client seeking to challenge a ruling that the client repay benefits because of unreported income." rimshot

  5. I am not a fan of some of the 8.4 discipline we have seen for private conduct-- but this was so egregious and abusive and had so many points of bad conduct relates to the law and the lawyer's status as a lawyer that it is clearly a proper and just disbarment. A truly despicable account of bad acts showing unfit character to practice law. I applaud the outcome.

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