Bankruptcy and Student Loans: One Frustrating True Story (Part 2)

29 Oct Bankruptcy and Student Loans: One Frustrating True Story (Part 2)

In part 1, the debtor thought he had discharged his student loan. Had he?  Read on…

Well, our hero did exactly what you would do – he sent the collection company a copy of the judge’s order (again), and a letter asking them to stop harassing him.  They didn’t stop: just kept sending the letters and the bills. 

So, he hired an attorney who sent a letter and another copy of the judge’s order to the collection company and the student loan agency.  They still didn’t stop: more letters and calls.

The attorney reopened the old bankruptcy and filed an adversary complaint alleging that the continued harassment of the student loan agency and the collection company was a violation of the injunction in the bankruptcy act against trying to collect a discharged debt. 

The student loan agency hired an attorney who filed a motion to dismiss the adversary complaint for failure to state a cause of action, basically arguing that the judge’s order didn’t discharge the debt, only invalidated the claim, and therefore, the debt was still valid.  (There is no statute of limitations whereby a student loan becomes unenforceable.)

At the motion, the bankruptcy judge ruled that the student loan agency’s attorney was correct and only the “claim” was dealt wasn’t discharged and it was still owed! 

The judge, however, did give the debtor’s attorney permission to amend the complaint to argue that the student loan agency and its collections agency shouldn’t be able to collect on the debt because of estoppel or laches, or the like.  These are equitable principals that would allow the court to say that the debtor, having been told he didn’t have to pay the student loan, was relieved of the obligation because he relied on those statements. 

Read part 3 to find out what happened next.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.

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