Maine Bankruptcy and Debt Relief Blog

Recent Supreme Court decisions

Posted on 03/26/2010 at 12:00 am by Molleur Law Offices
Viewed 1,180 times

There have been several important US Supreme Court decisions recently. The first is Milavetz v. United States in which the Supreme Court ruled that debtors’ bankruptcy counsel are “debt relief agencies”. The Bankruptcy Code requires debt relief agencies to provide certain notices and information to debtors prior to filing a bankruptcy petition, and also prohibits debt relief agencies from encouraging debtors to incur new debt immediately prior to filing. The Supreme Court noted that debtors’ counsel are still allowed to have a “full and frank” discussion with their clients about their financial options, including whether incurring new debt prior to filing is for a legitimate purpose.

In the second case, United Student Aid Funds, Inc. v. Espinosa, the Supreme Court addressed the issue of whether undue hardship of a student loan could be determined through confirmation of a Chapter 13 plan. Espinosa filed a Chapter 13 plan which proposed to pay a portion of his student loan debt, then discharged the remaining amount due. United Student Aid Funds did not object to the plan and the plan was confirmed by the bankruptcy court. At the conclusion of the plan, United Student Aid Funds filed an adversary proceeding in the bankruptcy court challenging Espinosa’s discharge of its debt.

United Student Aid Fund argued that the usual procedure for determining the undue hardship test for student loan discharge was by adversary proceeding, and discharge by plan confirmation was not permitted under the Code. The Supreme Court disagreed, and held that if a debtor’s Chapter 13 plan sets forth the undue hardship test and the court finds the facts demonstrating undue hardship are proven, the student loan can be discharged in the plan confirmation process. This decision provides debtors with a less expensive means of proving undue hardship and may enable more student loan debt to be discharged in the bankruptcy process.