Prepetition Student Loan Debt Not Discharged After Being Consolidated Postpetition

In Barrett v. Great Lakes, 417 B.R. 471 (Bankr. N.D.OH 2009), debtor filed chapter 7 bankruptcy in 2005. The next year debtor brought an adversary proceeding seeking an order determining the dischargeability of debtor’s student loans on “undue hardship” grounds. The original student loan creditor moved to dismiss the adversary complaint alleging that debtor’s prepetition student loan debt was paid postpetition when debtor consolidated various prepetition loans into a new loan made postpetition. The new student loan creditor who funded the consolidated loan supported the position of the original student loan creditor and maintained that the consolidation of debtor’s student loan debt created a new postpetition obligation which could not have been discharged by the underlying chapter 7 discharge.

The facts in this case were not in dispute. After receiving the chapter 7 discharge, debtor entered into a consolidated loan agreement with a new student loan creditor. The consolidation agreement was made pursuant to the Federal Family Education Loan Program, known by its acronym FFELP. Under this agreement, debtor was able to consolidate a number of loans debtor incurred prepetition to finance debtor’s higher education.

The court granted the creditor’s motion to dismiss after holding that the consolidated debt incurred postpetition could not be discharged via the adversary proceeding. The court believed that the consolidated debt arose after the commencement of the debtor’s chapter 7 case and therefore could not be subject to discharge. The court reaffirmed the well-settled fact that a debt must have been in existence prior to the commencement of the bankruptcy case in order for the debt to be encompassed within the scope of a court’s discharge order. In the instant case, the court noted that the consolidated loan was made pursuant to the Federal Family Education Loan Program as governed by 20 U.S.C. §1078-3. Under that statute a consolidation loan is considered a “new loan” and the statute provided that liability upon the initial loan is discharged upon consolidation into a new loan. Therefore, the court found that where student loans are consolidated postpetition, the consolidated debt is deemed to have arisen after the commencement of the bankruptcy case and thus excluded from discharge.


Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
Click for Bankruptcy Lawyer Job Opportunities.

You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/student_loan_discharge.htmlto learn about how the bankruptcy laws can help you.

Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.

For information about Chapter 7 bankruptcy Click Here

For information about Chapter 13 bankruptcy Click Here

NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.

I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.