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Student Loans can be Discharged (at Least Partially) in Bankruptcy After All

By: Carmella Gubbiotti

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Recently, the United States Bankruptcy Court for the Southern District of Indiana in In re Fecek,[i] partially discharged a substantial portion a debtor’s student loan debt even though the debtor was working full time and earned an income that was above the state median.[ii] In particular, the Fecek court applied section 523(a)(8) of the Bankruptcy Code’s[iii] undue hardship exception to award a partial discharge of student debt in a chapter 7 bankruptcy in which the debtor was actually utilizing her degree in a full time position.[iv] The debtor in Fecek earned professional degrees in both psychology and nursing.[v] As result financing these degrees by taking out student loans, the debtor owed nearly $280,000 to private student loan lenders in addition to almost $65,000 in federal student loan debt. Unfortunately for the debtor, the value of her loans was less than her earing potential and further, the Sallie Mae was unwilling to engage in loss mitigation negotiations.[vi] Faced with an impossible situation, in November 2012, the debtor filed for chapter 7 relief in the Southern District of Indiana. She initiated an adversary proceeding to determine whether she would be eligible for a discharge of her student loans due to undue hardship. The court ultimately found her loans to be partially dischargable.

They’re Rare and They’re Exceptional: Fee Enhancement Authorization by Bankruptcy Courts

By: Adrianna R. Grancio

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Recently, in In re Asarco,[i] the Fifth Circuit held that a bankruptcy court did not abuse its discretion in authorizing fee enhancements to two law firms representing a chapter 11 debtor in connection with their remarkably successful fraudulent transfer litigation.[ii] The Fifth Circuit also agreed with the lower court decision in rejecting compensation for the defense of fee applications[iii]. In In re Asarco, Baker Botts L.L.P. (“Baker Botts”) and Jordan, Hyden, Womble, Culbreth & Holzer, P.C. (“Jordan Hyden”) served as debtor’s counsel to the chapter 11 debtor and helped the debtor confirm a plan that paid creditors in full[iv]. In connection with that representation, Baker Botts and Jorden Hyden successfully prosecuted complex fraudulent transfer claims against the debtor’s parent corporation resulting in an unprecedented judgment valued at between $7 and $10 billion.[v] While Baker Botts and Jordan Hyden were compensated pursuant to section 330(a) of the Bankruptcy Code, the bankruptcy court authorized a twenty percent fee enhancement for Baker Botts and a ten percent fee enhancement for Jordan Hyden.[vi] The bankruptcy court based the authorization of the fee enhancements on the “rare and exceptional” performance of the firms in successfully prosecuting a multi-billion dollar fraudulent conveyance action and the fact that the rates charged by Baker Botts were roughly twenty percent below market rate.[vii] On appeal to the district court, the fee enhancements were affirmed.[viii] After the parent corporation appealed again, the Fifth Circuit affirmed the lower court’s authorization of the fee enhancements.[ix] Further, the Fifth Circuit, ruling in line with the Eleventh Circuit[x] held that based on the plain meaning reading of Section 330(a) compensation for the cost counsel or professionals incur in defending fee applications is not permissible.

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