Almost anyone who has a large student loan knows that the general rule isthat you cannot discharge student loans in a bankruptcy. If you could, every college graduate in America would be lining up to file. Of course, there are some exceptions to this general rule, which the professionals at Leiderman Shelomith, P.A. can advise you about. That doesn’t mean, though, if you are a student loan servicer, or other creditor holding a student loan note, that you don’t have to heed the notices, orders, or rules of the Bankruptcy Court. This is a lesson that ECMC Servicing learned all too well in the case of In re Hann, 2013 WL 1277132 (1st Cir., 2013).
Hann filed for bankruptcy protection under Chapter 13. ECMC, Hann’s student loan servicing agency, filed a proof of claim in her case in the amount of $54,756. Hann filed an objection to the claim, noticed it for hearing, and gave extensive testimony and documentation evidencing her claim that the loan had been paid in full. ECMC received notice of the hearing, but failed to appear and defend its claim. The Bankruptcy Court sustained Hann’s objection and disallowed the claim in its entirety. Hann completed her chapter 13 plan, and received a discharge. ECMC, relying on the assumption that student loans are never dischargeable, began efforts to collect the debt after Hann received her discharge.
Hann petitioned the bankruptcy court for relief, requesting that the court enter judgment declaring the student loan was paid in full, issue an injunction ordering ECMC to stop collecting, and sanction ECMC for contempt. And this is exactly what the Court did.
ECMC appealed, claiming that the bankruptcy court’s Order disallowed their claim in Hann’s bankruptcy case, but did not make a factual determination that the loan was not owed. Both the Bankruptcy Appellate Panel and the 1st Circuit Court of Appeals rejected ECMC’s argument, stating that while the Court’s Order did not specifically state that the reason for disallowing the claim was that the Court found that Debtor to have paid the loan, the record of the testimony and other evidence heard at the hearing on the objection to claim was so extensive that there could be no other conclusion.
The Appeals Court went on to uphold the granting of sanctions against ECMC, finding ECMC ignored the bankruptcy claim objection notifications, ignored the attempts of Hann’s counsel to contact and negotiate with it, and abused the bankruptcy process.
If you have a student loan and are considering bankruptcy, learn all the facts regarding the treatment and payment under the Bankruptcy Code. The law firm of Leiderman Shelomith Alexander + Somodevilla, PLLC can assist you today. Schedule a free and confidential consultation with the firm by calling (954) 932-5377 or submitting a web request here.