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Student Loan Law: 15.7.2 Proper Parties and Service

When preparing an undue hardship adversary proceeding, advocates must be careful to name all potentially relevant parties as defendants. Litigation against the wrong parties can waste time and provide no relief.556 Checking the National Student Loan Data System (NSLDS) can help identify the appropriate parties when the loans are government-related.557 Guarantors should be included when appropriate so that a judgment will be binding against them.

Student Loan Law: 15.9.6 Chapter 13 Plans May Provide for Participation in Long-Term Income-Driven Repayment Plans

A chapter 13 plan can provide expressly for participation in a long-term repayment plan, certifications for renewals, and procedures for addressing changes in payments during the life of plan.751 Prior to 2015, the Department of Education and its guaranty agencies and servicers placed all student loans for chapter 13 debtors in administrative forbearance. This prohibited collection actions, but did not stop accrual of interest. Accrual of interest during a three-to-five year plan can devastate a debtor’s fresh start.

Student Loan Law: 15.12 Challenging Aspects of the Debt in Bankruptcy in the Absence of a Proof of Claim

Because bankruptcy courts have authority to determine the dischargeability of student loan debts, they can make these determinations even when the creditor has not filed a proof of claim in a bankruptcy case.815 Most consumer chapter 7 filings result in what are deemed “no-asset” cases. Because no non-exempt assets are available for liquidation in these cases, creditors do not file proofs of claim.

Student Loan Law: 15.1.1 Introduction

Discharging student loans in bankruptcy is an important strategy for low-income consumers, either through a chapter 7 (“straight”) or a chapter 13 (“wage earner plan”) bankruptcy filing.1 Although the 2005 amendments made bankruptcy a more cumbersome process for debtors, it is still an option consumers struggling with debt may consider.2 In addition, even when a student loan cannot be discharged in bankruptcy, a chapter 13 bankruptcy filing offers other important options for the student loan borrower.

Student Loan Law: 15.1.2.2 The Discharge Order

After the bankruptcy case has closed and the automatic stay is no longer in effect, the creditor may resume collection activity on a nondischargeable student loan. This action will not violate the discharge order entered at the close of the bankruptcy case.22 Typically, the bankruptcy court will not have made a specific determination as to the nondischargeability of the educational debt during the pendency of the case.

Student Loan Law: 15.2.6 The Role of Programs Guaranteed or Insured by a Nonprofit or Government Entity in Cases Decided Under the Pre-2005 Version of Section 523(a)(8)

For cases filed after October 2005, subsection (B) of section 523(a)(8) will make it unnecessary to consider some of the more subtle distinctions between private and government/nonprofit loans that produced considerable litigation before the 2005 amendments. New subsection (B) extended the scope of the discharge exception to all student loans that qualify for the IRS tax deduction for interest paid on student loans.

Student Loan Law: 15.3.2 Parents and Other Co-Signors

Most courts find the exception to discharge for student loans applies not only to student borrowers but also to parents, spouses, or non-relatives who co-sign a student loan.203 Early on, the courts were divided over this question.204 The arguments in favor of excluding co-obligors from the discharge exception focused on several rationales.

Student Loan Law: 15.3.3 Reimbursement Claims by Individuals Are Not Student Loans

Dischargeability disputes have arisen between two individuals who were responsible for paying the same student loan. For example, one co-borrower who paid off a student loan may assert a claim for reimbursement from the nonpaying co-borrower. If the nonpaying co-borrower files for bankruptcy relief, does the co-borrower who paid off the loan have a claim that fits within the discharge exception of section 523(a)(8)?

Student Loan Law: 15.4.1.1 Generally

Because most student loan debt falls within one of the categories under section 523(a)(8), most bankruptcy debtors who seek to discharge these debts will face the question of whether they meet the Code’s “undue hardship” standard.

Student Loan Law: 15.4.1.2 The Brunner Test

All courts of appeals except the First and Eighth circuits have adopted the three-prong test for determining undue hardship set forth in the Second Circuit’s 1987 decision in Brunner v.

Student Loan Law: 15.4.2.1.3 Long-term income-driven repayment plans should play no role under the first Brunner prong

The first Brunner prong asks whether the debtor can maintain a minimal standard of living “if forced to repay the loans.”260 The Brunner court did not frame the question as whether the debtor can maintain a minimal standard of living and possibly obtain forgiveness of the loans twenty or twenty-five years in the future after completing a long-term income-driven repayment plan.261 The relationship between these plans and the bankruptcy undue hardship standard is considered in mo

Student Loan Law: 15.9.4 Separate Classification of Student Loan Debts in Chapter 13 Bankruptcy

Many courts have found separate classification of student loan debts in chapter 13 bankruptcy to be fair.720 In applying the multi-factor tests for fairness, these courts emphasize certain key features of student loan debt. For example, allowing nondischarged student loan debt to increase significantly discourages repayment and compromises the important “fresh start” goal of the Bankruptcy Code.

Consumer Credit Regulation: Introduction

This set of summaries encompasses state statutes that allow lenders other than depository institutions to make installment loans. It excludes statutes and statutory provisions that:

Consumer Credit Regulation: Cal. Fin. Code §§ 22000 to 22758 (West) (Financing Law).

What types of lenders does it apply to (e.g., banks vs. non-banks)? “Finance lender” includes any person engaged in the business of making consumer loans (defined by § 22204 to include loans of less than $5,000 for non-consumer purposes) or making commercial loans. § 22009. “Finance lender” includes any person engaged in the business of making consumer loans as defined in § 22203 or making commercial loans of $5,000 or more. § 22009. Consumer loans also include commercial loans of less than $5,000 as defined by § 22204. The above statute does not apply to:

Consumer Credit Regulation: Colo. Rev. Stat. §§ 5-1-101 to 5-13-103 (Consumer Credit Code).

What types of lenders does it apply to (e.g., banks vs. non-banks)? All creditors extending consumer credit except loans to government, non-installment sales of insurance, certain transactions under public utility or common carrier tariffs, certain transactions with pawnbrokers, certain aspects of transactions involving securities and commodities accounts, and certain state-guaranteed loans. § 5-1-202. Some provisions apply just to “supervised lenders,” defined as depository institutions and licensed lenders, or to “supervised loans,” defined as consumer loans at more than 12%.