Private student loans can be tossed in bankruptcy, appeals court rules

Signs can be seen at the Navient offices in Wilmington, Delaware, USA on June 9, 2021. REUTERS / Andrew Kelly

• Summary
• Companies
• Law firms

• The ruling could open doors for more borrowers to pay off private student loan debt
• Navient supports the reform of bankruptcy law

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(Reuters) – A federal appeals court based in New York said Thursday that private student loans are not protected from bankruptcy relief.

In a 21-page decision, a three-judge panel of the U.S. 2nd Court of Appeals upheld U.S. bankruptcy judge Elizabeth Stong’s refusal to dismiss a lawsuit against student loan administrator Navient Solutions LLC, accusing her of violating an earlier court order to repay the loans of a borrower.

Boies Schiller Flexner’s George Carpinello, who represented the borrower, said in an interview Thursday that the decision matters to people who may have wanted to apply for bankruptcy relief to pay off their student loan debt but felt they couldn’t because they had taken over their private loans would not be deductible.

“The really outrageous thing is that Navient has been telling people for years that their loans are not excusable when they are, in fact, excusable,” he said.

After graduating from Emerson College, borrower Hilal Homaidan filed for Chapter 7 bankruptcy in New York and received credit relief in 2009. However, the dismissal order was unclear as to whether it related to Homaidan’s two private loans totaling $ 12,567, the decision said. Navient, Sallie Mae’s successor as loan administrator, definitely asked for the repayment.

Homaidan repaid the loans but reopened bankruptcy proceedings in 2017 to file an alleged class action lawsuit against Navient accusing him of seeking repayment of loans that had gone bankrupt. Navient moved the case to be dismissed, saying the loans could not be discarded under a provision of bankruptcy law that prevents a borrower from fulfilling “an obligation to repay funds received as an educational benefit”.

Navient, represented by McGuireWoods, argued that these words encompass not only government loans but also private student loans, while Homaidan argued that they only apply to a narrow group of conditional grant payments.

In the decision, written by District Judge Dennis Jacobs and accompanied by Judges Denny Chin and William Nardini, the court agreed with the bankruptcy court’s finding that the formulation of the “educational benefits” provision was “an unconventional way of discussing a loan “. The court said that if Congress had intended to protect all education loans from dismissal, “it would not have done so on such stilted terms.”

The 5th and 10th U.S. Appeals Courts have issued similar rulings on private student loans.

Navient said in a statement that the appeal only covered one aspect of the case and would continue to offer defenses on other matters in the case.

“We recognize that some student borrowers face long-term financial challenges, and it is for this reason that Navient has been recommending bankruptcy reform for several years that would allow government and private student loans to go bankrupt after faithful repayment,” said Navient .

Earlier this year, Navient beat off an attempt by a handful of student loan borrowers to drive the company into involuntary bankruptcy.

The case is Hilal K. Homaidan v Sallie Mae, Inc. et al., U.S. 2nd Circuit Court of Appeals, No. 20-1981.

For Homaidan: George Carpinello, Adam Shaw, Robert Tietjen and Jenna Smith from Boies Schiller Flexner, Austin Smith from Smith Law Group, Lynn Swanson and Peter Frieberg from Jones Swanson Huddell & Daschbach and Jason Burge from Fishman Haygood

For Navient: Thomas Farrell and Elizabeth Victory from McGuireWoods

Continue reading:

Richter rejects student loan offers to drive Navient into bankruptcy

Maria Chutchian

Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.

source https://collegeeducationnewsllc.com/private-student-loans-can-be-tossed-in-bankruptcy-appeals-court-rules/