Wednesday, September 27, 2023
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Student Loans Can Be Discharged in Chapter 13

SAN FRANCISCO (CN) - A debtor can discharge a student loan in a Chapter 13 bankruptcy plan if the creditor fails to object after being notified of the proposed plan, the 9th Circuit ruled.

United Student Aid Funds tried to collect the unpaid portion of Francisco Espinosa's student loan, even after he listed it in his Chapter 13 bankruptcy plan, which had been approved by a bankruptcy court.

The lender claimed Espinosa could not discharge his student loan unless he could prove "undue hardship" by filing a complaint.

"Had the creditor wanted to insist on an adversary, it could have objected to the Chapter 13 plan on the ground that there was no judicial finding of undue hardship," Judge Kozinski wrote. Instead, the defendant accepted Espinosa's payments and "then acted as if the whole thing never happened," the judge said.

"It makes a mockery of the English language and common sense to say that Funds wasn't given notice, or was somehow ambushed or taken advantage of," Kozinski wrote.

"We find it highly unlikely that a creditor whose business it is to administer student loans will be misled by the customary bankruptcy procedures or somehow be bamboozled into giving up its rights by crafty student debtors."

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