Great New Opinions for Discharging Private Student Loan Debt in Bankruptcy

On January 31, 2019, Judge Stong of the Eastern District of New York denied the Motion to Dismiss filed by SLM Corporation, Sallie Mae, Inc., Navient Solutions, LLC and Navient Credit Finance Corp.  In this Memorandum Decision, the Court dealt a blow to the private student loan defendants when it permitted Plaintiff to proceed with its case (note a Motion to Dismiss is a preliminary motion and the case is far from over).  In re Homaidan, Adv. Pro. No. 17-01085 (E.D. N.Y. 2019).

A nearly identical ruling was made the same day in In re Tashanna Golden, Adv. Pro. No. 17-01995 by the same Judge.

These cases dealt with Tuition Answer loans which the Plaintiff alleges are not “qualified education loan[s]” under the Bankruptcy Code Section 523(a)(8)(B), and for that reason, they were discharged in his Chapter 7 bankruptcy case.  The Plaintiff argues that loans of this nature are excluded from the scope of his bankruptcy discharge and therefore any attempt to collect the debt after the bankruptcy discharge amount were impermissible and a violation of the discharge order.

The argument is one that we’ve been raising here in Florida.   Essentially, these private loans “do not meet the definition of a nondischargeable qualified education loan” as set forth in Internal Revenue Code Section 221(d) and Bankruptcy Code Section 523(a)(8)(B).

As the Court noted in these two cases:

• Bankruptcy Code Section 523(a)(8)(A)(ii), both by its terms and read in context, does not sweep in all education-related debt, or all loans that support a student’s efforts to gain the benefits of an education.
• If this Section had the breadth for which the Defendants advocate, it is hard to see where it would end – conceivably, it could encompass credit card debt that was incurred to purchase textbooks, personal loans that were used to pay for tuition and school fees, and any other debt that, in one way or another, facilitated a student’s efforts to gain the “benefits” of an “education.”
• And plainly, this is not what Section 523(a)(8)(A)(ii) encompasses, or what the Bankruptcy Code permits, or what Congress intended.
• In addition, this Court also agrees with those other courts, including courts within and outside this District, that have concluded that “an obligation to repay funds received as an educational benefit” must mean something other than a loan.
• As one bankruptcy court observed, this conclusion is necessary because another subsection, Section 523(a)(8)(B), excludes from discharge “qualified education loans.” In re Decena, 549 B.R. at 19. Interpreting Section 523(a)(8)(A)(ii) to encompass a loan would result “in subsection 523(a)(8)(B) being subsumed by subsection 523(a)(8)(A)(ii), and [would] render[] subsection 523(a)(8)(B) superfluous.” Id.

In another opinion, the Court also declined to compel arbitration.  Homaidan v. SLM Corp. (In Re Homaidan), 587 B.R. 428 (Bankr. E.D. N.Y. 2018).

We’re gaining ground around the country with these arguments.  Stay tuned for more.  And if you have private student loans in Florida, please consider reaching out to an experienced student loan/bankruptcy attorney such as our firm, to see if these new arguments and rulings can help you to eliminate private student loan debt.