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Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience:  Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
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We recently completed chapter 13 and federal judge included

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We recently completed chapter 13 and federal judge included my loans for school in there. The orginial lender is listed with the loan amount. Six weeks after the completion and the final Trustee's Report. I started getting letters from Sallie Mae stating we owe 112,560 in loans they added the insterest from 91,042 which shows on the trustees report. Sallie Mae typed on my credit report that the loan was discharged and included in the chapter 13. Why are they harassing me and what should I do?

Fritz :

In order to actually discharge student loans in a Chapter 13 bankruptcy, you must have filed an adversary complaint against the student loan lender (i.e. "Complaint to Determine Dischargeability of Student Loan Debt"). This proceeding would have had its own separate case number XXXXX would have likely been contested by the student loan lender. Did you file an adversary proceeding against the student loan lender?


Fritz :

Unfortunately, it is unlikely that your student loans were discharged in the bankruptcy unless you filed an adversary proceeding (even if your Chapter 13 Plan did not provide for them in full and no objections were filed after proper notice to the student lender).


Fritz :

How did you treat the student loan lender in your plan, as a general unsecured claim in the amount of $91,042?


Please let me know whether you filed an adversary proceeding against the student loan lender and how you treated the student loan lender in your Chapter 13 Plan, and I will be able to give you a more concrete answer. Thanks.
Customer: replied 5 years ago.
No we didn't file an adversary hearing. Our lawyer didn't tell us we could. The school loan is showing unsecured claim and is listed with all other debt that was wiped out. Our attorney's office said that if there is an amount showing next to it for the loan amount then it is included. The loan company even typed that it was discharged through ch. 13 on my credit report under the loan number. On the means test we scored a negative number and didn't have to pay back any unsecured debt. We wondering if it showed undo hardship using the Brunner test per the state of NC. There were no objections when the notices were sent out by the trustee. There was a form filled out in our application called a section F form with the school loan on it.

In order to discharge your student loans in a bankruptcy proceeding, you MUST file an adversary complaint against your student loan lender(s) and prove undue hardship within that adversary proceeding.

To demonstrate "undue hardship," bankruptcy courts use a three-part test. You must demonstrate ALL of the following in order to discharge your student loans in bankruptcy:

1) If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.

2) You can show that this hardship will continue for a significant portion of the loan repayment period.

3) You made good-faith efforts to repay the loan before filing bankruptcy (typically a minimum of five years).

In practice, the real sticking point for most people seeking to discharge a student loan debt is the "minimal standard of living" part.

Court decisions have interpreted "minimal standard of living" as EXTREMELY minimal. Actual poverty (i.e. having income that falls below the federal poverty line) is NOT sufficient; falling below a "minimal standard of living" is basically abject poverty (i.e. unable to afford food or shelter; homeless and living on the streets).

Please see the following case, noting how extreme a healthy individual's situation needs to be in order to discharge student loans under the above standard. This is one of only a few decisions discharging a non-disabled individual's student loans.




Outside of bankruptcy, loans may also be discharged if an individual is classified as "totally and permanently disabled." Such disability must be certified by a physician and be a disability such that the borrower is "unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months, or can be expected to last for a continuous period of not less than 60 months." In short, this is a 100% physical and/or mental disability standard.

Were your student loans explicitly discharged in the Chapter 13 bankruptcy (i.e. they were scheduled as unsecured creditors, and you received a discharge of the student debt in your discharge order)?

If so, there's law supporting your position that your loans may be discharged since the student lenders failed to object to confirmation of your Chapter 13 Plan.

See Student Aid Funds, Inc. v. Espinosa, a 2010 U.S. Supreme Court case, linked here:

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