Covering the Front and Back Pages of the Newspaper
March 23, 2010
LAW: Triple FAIL
Here's the opening of the syllabus of today's lone Supreme Court opinion, United Student Aid Funds, Inc. v. Espinosa, No. 08-1134, a unanimous decision written by Justice Thomas:
A plan proposed under Bankruptcy Code (Code) Chapter 13 becomes effective upon confirmation, see 11 U. S. C. ss1324, 1325, and will re-sult in a discharge of the debts listed in the plan if the debtor completes the payments the plan requires, see s1328(a). A debtor may obtain a discharge of government-sponsored student loan debts only if failure to discharge that debt would impose an "undue hardship" on the debtor and his dependents. ss523(a)(8); 1328. Bankruptcy courts must make this undue hardship determination in an adversary proceeding, see Fed. Rule Bkrtcy. Proc. 7001(6), which the party seeking the determination must initiate by serving a summons and complaint on his adversary, see Rules 7003, 7004, 7008. Respondent Espinosa's plan proposed repaying the principal on his student loan debt and discharging the interest once the principal was repaid, but he did not initiate the required adversary proceeding. The student loan creditor, petitioner United, received notice of the plan from the Bankruptcy Court and did not object to the plan or to Espinosa's failure to initiate the required proceeding. The Bankruptcy Court confirmed the plan without holding such a proceeding or making a finding of undue hardship. Once Espinosa paid his student loan principal, the court discharged the interest. A few years later, the Department of Education sought to collect that interest.
If you're keeping score at home:
(1) The debtor failed to use the proper procedure to request the discharge of his interest obligations;
(2) The creditor failed to object when given notice of this defective proceeding; and
(3) The court failed to make the necessary findings to justify the discharge.
Can't anybody play this game?
Sensibly enough, after being presented with this train wreck of mutual malpractice, the Court decided to let sleeping dogs lie, holding that the creditor couldn't go back later on and reopen the judgment, having failed to object at the time (the creditor had argued, and the Ninth Circuit had agreed, that the court's failure to make the hardship finding was equivalent to acting without jurisdiction and thus voided the judgment even without a timely objection).