Contact: John Hartgen
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RESPONDENTS CLOSELY DIVIDED OVER WHETHER A CHAPTER 13 DEBTOR MAY OBTAIN A “DISCHARGE BY DECLARATION”

December 12, 2008, Alexandria, Va. — Respondents to the latest ABI Quick Poll were closely divided over whether a debtor could obtain a discharge of a student loan by including it in a chapter 13 plan if the creditor fails to object after receiving notice. Forty-four percent of respondents did not think that a debtor could receive a discharge of a student loan if a creditor had received proper notice and failed to object to the chapter 13 plan. Thirty-six percent “strongly disagreed” and 8 percent “disagreed somewhat.”

Fourty-three percent of respondents, however, thought that the debtor should be able to receive a discharge of a student loan if it was included in their chapter 13 plan and did not receive an objection from a creditor after serving the creditor notice. Thirty percent “strongly agreed” and 13 percent “somewhat agreed.”  Eleven percent of respondents did not know or had no opinion on the issue.

Most student loans are undischargeable in bankruptcy unless the debtor can show that loan repayment imposes an “undue hardship,” generally a difficult standard to meet.

In the case of Espinosa v. United Student Aid Funds, the debtor included a portion of student loan debt to be discharged in his chapter 13 plan. The court notified United States Aid Funds, a nonprofit loan guarantee corporation, that there was a discrepancy in the claim on the student loan and that if the creditor wanted to object to the discrepancy, the corporation must file a request with the trustee in the case for resolving the discrepancy. The notice stated that if the creditor did not send a notice or object to the claim, the amount in the debtor’s chapter 13 plan would be discharged. When the creditor did not object, the chapter 13 plan was confirmed and the student loan debt was discharged. The creditor tried to collect on the amount of the discrepancy three years later, but the Ninth Circuit Court of Appeals upheld the discharge since proper notice was served on the creditor.

ABI members and members of the public were welcome to submit their response to the statement: “A debtor may obtain a discharge of a student loan by including it in a chapter 13 plan if the creditor fails to object after notice (discharge by declaration). (Espinosa v. United Student Aid Funds, 9th Cir).”

ABI’s Quick Poll is posted on ABI’s home page, www.abiworld.org. ABI members and the public are invited to respond to a question on a timely bankruptcy or insolvency issue. Visit http://www.abiworld.net/quickpoll/ to access the results of previous ABI Quick Polls.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,700 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.