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SCOTUS to Examine Bankruptcy Discharge of Student Loans

By Kevin Fayle on June 15, 2009 | Last updated on March 21, 2019
There's been much discussion about student loans ever since the economy tanked.  Many students leave school with debt payments they find impossible to stay current on with their postgraduate salaries.  This phenomenon only increases in tough economic times as recent graduates take jobs they are overqualified for, or are unable to find work altogether.

Some feel that the rising cost of higher education, and the consequent increase in the amount of student loan debt the average student is forced to shoulder, is an unfair burden for those seeking to enhance their education with a college or advanced degree.
Others argue that high levels of student loans are simply indicative of the fundamental problems that have left consumers in such bad shape during this downturn: Just as consumers overextended themselves by buying too many luxury items on credit, students have exceeded their means by choosing expensive institutions without regard for what their prospects for future employment and repayment might look like.

The student loan issue is a particularly personal one for attorneys.  Law school isn't cheap.  Many attorneys go to law school expecting to land a BigLaw position that will allow them to pay off their student loan debt in a few years, only to find that avenue closed to them.  This has happened to more and more law students as BigLaw firms have begun reducing their first year hires and laying off associates.

Wherever you fall in the student loan debate, it should interest you to know that the Supreme Court will take up student loan dispositions during bankruptcy in its next term. 

The case, United Student Aid Funds, Inc. v. Espinosa, involves the question of whether a discharge of student loan debt during a Chapter 13 bankruptcy proceeding requires a showing of "undue hardship" and an adversarial proceeding.

The debtor in the case sent a Chapter 13 plan to his student loan provider.  The creditor did not challenge the plan , but later tried to recover the difference between the amount owed and the amount that the debtor agreed to repay.

The district court found for the student loan provider, but the 9th Circuit overturned that decision on appeal.

See Also:
United Student Aid Funds, Inc. v. Espinosa (9th Circuit)
Supreme Court takes student loan bankruptcy case (JURIST)
Court to rule on student loan debts (SCOTUSblog)

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