No good deed goes unpunished. That’s the lesson we learn from Juber v. Conklin.
Kevin and Linda Juber were delighted to learn that their son Christopher (Kip) was engaged to marry Liana Sue Conklin. Kip and Liana had begun dating when Liana was a student at the University of New Haven.
Liana had financed her college studies with scholarships, federal student loans, and three private loans. The interest rate on the private loans was high–bearing a weighted average of 9.5 percent. The total amount borrowed through private loans was almost $90,000.
Mr. and Mrs. Juber wanted Kip and Liana to begin their married life unencumbered by burdensome debt, and they offered to pay off Liana’s three private student loans. The Jubers obtained the money to pay off the loans by drawing on their home-equity line of credit (HELOC), which had a very attractive interest rate: only 1.99 percent.
Apparently, the arrangement called for Liana to make $500 bi-weekly payments to the Jubers for about a year when the Jubers expected to sell their home. Liana and Kip would then refinance the debt at a low-interest rate to repay the Jubers, which would allow the Jubers to pay off their HELOC loan.
Fortunately or unfortunately, Liana broke her engagement with Kip. For a while, Liana made regular payments to the Jubers on the debt, but she later filed for bankruptcy and attempted to discharge the Jubers’ loan through the bankruptcy process.
The Jubers sued Liana in a North Carolina bankruptcy court, arguing that their loan to Liana was a student loan that could not be discharged in bankruptcy unless Liana could establish that repaying the Jubers would impose an undue hardship.
Judge Laura T. Beyer, a North Carolina bankruptcy judge, conducted an exhaustive statutory analysis to determine whether the Jubers’ loan to Liana Conklin was dischargeable. In the end, Judge Beyer sided with Liana.
In Judge Beyer’s view, “the Jubers issued a private loan to [Liana] that served a personal purpose rather than an educational one” (p. 680). Thus, Judge Beyer concluded, “the Jubers’ purpose, although generous, was not meant to help [Liana] but, rather, their son” p. 681).
As a matter of law, the Judge ruled, the Jubers’ loan to Liana was a “general unsecured debt” that could be discharged through bankruptcy like any other unsecured debt. The Jubers are appealing Judge Beyer’s ruling, but the judge’s legal analysis is sound.
My sympathies are with Kevin and Linda Juber. They loaned Liana nearly $90,00 in a spirit of generosity in order to help Kip and Liana begin their marriage “somewhat free of debt.” Had the Jubers not paid off Liana’s private student loans, those loans would not have been dischargeable in bankruptcy.
It is unjust in my opinion for the Bankruptcy Code to protect private lenders like Wells Fargo Bank and Sallie Mae, who are loaning students money at high-interest rates, while kind-hearted people like Kevin and Linda Juber are not given similar protection.
Juber v. Conklin, 606 B.R.664 (Bankr. W.D.N.C. 2019).
Note: Judge Beyer’s opinion did not specify the amount of money that the Jubers lent to Liana. The Jubers stated in their appellant brief that they loaned her $89,186.
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The appellate court reversed the bankruptcy court this week.