1. Managing Student Loans in
Bankruptcy
Wednesday, May 4, 2016
12:00 PM - 1:15 PM
U.S. District Courthouse - Jury Lounge
333 W. Broadway
San Diego, CA 92101

2. Presenters
• The Honorable Louise DeCarl Adler,
Bankruptcy Judge, Southern Dist. Of CA
• D.J. Rausa, Attorney at Law
• Richard Stevenson, Staff Attorney, Chapter 13
Trustee

3. The Gravity of Student Loan Debt:
• 1.3 Trillion Dollars in outstanding student
loans
• Default rate, 20%
• This problem is not going anywhere.
• 40% of outstanding student loan debt are not in
repayment status.
• Absent a complete overhaul of the system, it
will only get worse

4. Major Causes of the Student Loan problem
The cost of higher education
Free flow of Federal Student Aid
Historic availability
Lack of Checks and Balances by the Dept. Ed.
Entry of Private student loan lenders
Abuses by For Profit colleges

5. Private or Federal Student Loans. How do
you know which is which?
Obtain the National Student Loan Data
System Report (Fed Only)
Federal Student Aid ID
Credit Report
Servicer letters

6. Special Notes for the Consumer Attorney
• Do not rely on servicer information: Same servicer
could, and often do, service both Fed. and Private
Loans.
• Loans are place “on hold” during bankruptcy.
• Interest accrues, then is capitalized into principle
upon Discharge. NSLDS report will give interest rate.
• Issues of Concern:
• 0% Chapter 13 plan, 3-5 years. Look at the amount of
Student Loan Debt.
• Private Lenders call the loans due upon Discharge of
borrower or co-borrower, even if current with
payments.

7. Chapter 7
Dischargeability Actions 11 USC 523 (a)(8)
Undue Hardship: Brunner Test
Brunner v. New York State Higher Educ. Servs.
Corp., 831 F.2d 395 (2d Cir. 1987).
Private Student Loans Only:
• Statute of Limitations. CCP 337
• Standing: The collateralization of Private Student Loans
• Title IV School, In Re Nunez 527 B.R. 410 (2015)

8. Chapter 13
Dischargeability Actions 11 USC 523 (a)(8)
Statute of Limitations.
Standing: The collateralization of Private Student Loans
Title IV Schools: In Re Nunez 527 BR 410 (Bankr. Court D.
Oregon 2015
Proof of Claim Issues: Objections
Stale Claims: Crawford v. LVNV FUNDING, LLC., 758 F.3d
1254 Court of Appeals, 11th Circuit 2014
FDCPA/Rosenthal

9. Is Brunner Eroding in the 9th Cir.?
Saxman v. Educ. Mgmt. Corp. (In re Saxman),
325 F.3d 1168 (9th Cir. 2003)
Hedlund v. Educational Resources Institute,
Inc. 718 F. 3d 848 - Court of Appeals, 9th
Circuit 2013
In re Roth, 490 B.R. 908 Bankr. Appellate
Panel, 9th Circuit 2013

10. Totality of the Circumstances 8th Cir.
• Long v. Educ. Credit Mgmt. Corp. (In re
Long), 322 F.3d 549 (8th Cir. 2003);
• Walker v. Sallie Mae Servicing Corp. (In re
Walker), 650 F.3d 1227 (8th Cir. 2011).

11. 1st Cir.
Murphy v. U.S. Dept. of Ed. 1st Cir. Court of
Appeals 14-1691 (2015)
Nash v. Conn. Student Loan Found. (In re Nash),
446 F.3d 188 (1st Cir 2006).
Bronsdon v. Educ. Credit Mgmt. Corp. (In re
Bronsdon), 435 B.R. 791 (1st Cir. BAP 2010).

12. Treatment of Federal Student Loans
in a Chapter 13 Plan
Separate Classification 1322 (b)(1): Because Loans are
place “on hold” during bankruptcy.
Excluding Icome Driven Repayment: Why is this so
important?
Continuous voluntary payments for Rehabilitation.
Teachers
Public service loan forgiveness
Military
Unfair Discrimination: In Re Wolff, 22 BR 510 (9th Cir.BAP
1981)

13. Treatment of Federal Student Loans
in a Chapter 13 Plan (cont)
• 1322(b)(5) Curing of Default and Maintenance
on Long Term Debt
US Department of Education does not have
current policy.
Will take separate Order of the Court.