Sixth Circuit Court of Appeals Looks At Student Loan Hardship Discharge in Chapter 13 Bankruptcy Cases
As various bankruptcy attorneys have discussed on this site, and as I recently discussed on our firm’s website, student loans are not usually discharged in bankruptcy. However, these debts can be discharged under limited circumstances through a hardship discharge. In the case of Jennifer Cassim v Educational Credit Management Corp., the U.S. Court of Appeals for the Sixth Circuit analyzed student loan hardship discharges in the context of a Chapter 13 proceeding. (For a discussion of how a discharge is generally obtained under Chapter 13, click here).
In Cassim, the debtor (Ms. Cassim) filed a Chapter 13 petition. She also filed an adversarial proceeding against Educational Credit Management Corp. to obtain a hardship discharge of her student loan. Educational Credit filed a motion to dismiss the adversary proceeding for lack of subject matter jurisdiction, contending that the question of whether Ms. Cassim’s student loan debt is dischargeable was not ripe for review, since she had not yet received a general discharge under 11 U.S.C. Sect. 1328. The bankruptcy court denied the motion and entered an order providing for discharge of Cassim’s student loan debt upon the entry of a general discharge.
Educational Credit appealed the issue to the Bankruptcy Appellate Panel for the Sixth Circuit, which affirmed. Educational Credit then sought review from the Sixth Circuit Court of Appeals. The Sixth Circuit noted that neither it nor the U.S. Supreme Court had previously addressed whether the issue of the dischargeability of student loan debt is constitutionally ripe for review before a debtor receives a discharge or will ‘imminently’ receive a discharge. However, in Educational Credit Management Corp. v. Coleman (In re Coleman), 560 F.3d 1000 (9th Cir. 2009), the court found that a the dispute such as this can be constitutionally ripe, even before the debtor has received a discharge pursuant to Sect. 1328. Based upon this precedent, the court found that the case was constitutionally ripe.
In so holding, the court found it particularly significant that the bankruptcy court’s confirmation of Cassim’s plan was necessarily premised on a finding that she would complete the plan. While factual developments may occur (such as non-compliance with the plan) which would make it too speculative that Cassim would receive a discharge under § 1328 – and in turn, make the controversy cease to exist – Educational Credit did not advance any facts to suggest that Cassim was particularly unlikely to receive a discharge.
