How to Proceed With a Student Loan Bankruptcy Discharge Adversary Proceeding


Dear Steve,

I want to file an Adversary Proceeding against the Dept of Education and Navient.

Can you please give me an idea as to what kind of discovery, etc to expect from the Dept. of Education and Navient in a proved adversary proceeding. Also, any suggestions on arguing prong 2 of the Brunner test?”



Dear Rodger,

When I read your question I instantly know the best person to answer was Richard Fossey, Professor Emeritus, University of Louisiana.

He has done a lot of work in helping others in similar situations with advice and court filings. He’s one of the unsung heroes in this field.

Here is what he had to say.

“A student-loan debtor who files an adversary proceeding to discharge student loans in bankruptcy can expect detailed requests for documents, requests for admission, and detailed interrogatories. You may also be deposed by your creditor’s attorney.

Also, you may find that the Department of Education or your student loan servicer has assigned its interest in your loan to Educational Credit Management Corporation (ECMC). ECMC will then attempt to get the bankruptcy judge to deny you a discharge of your student loans. So you may be fighting Navient or DOE but you might be fighting ECMC.

Why is this practice so common? I think DOE turns the adversary proceedings over to ECMC because ECMC is very aggressive in fighting student-loan discharges and has a huge inventory of briefs, pleadings, and research that it can use to convince a bankruptcy judge that you are not entitled to a bankruptcy discharge under the “undue hardship” standard.

You can be sure that DOE or ECMC will ask for detailed information about your financial affairs in an effort to show that you do not meet the undue hardship standard of the Brunner test. If you go out to eat occasionally, go to the movies, have a cable television subscription, etc. your opponent will argue that you are living above a minimal standard of living and can’t meet prong one of the Brunner test. If you bought a motorcycle or went on a vacation recently, DOE (or ECMC or other servicers) will use these facts against you.

If you receive a Request for Admissions or Interrogatories, you must be very careful about how to respond. Under federal law, it is improper for a party to request the opposing party to admit to a legal proposition, but ECMC and DOE have not always abided by that rule. You should consult with an experienced attorney before answering an interrogatory or answering a request for admission.

If you are thinking about trying to discharge your student loans in bankruptcy you should prepare in advance and obtain all the records and documents you will need to help you make your case. You should round up evidence of every student-loan payment that you ever made and every piece of evidence showing your discussions with the loan servicer about entering an income-based repayment plan or a deferment. Those discussions may bolster your argument that you examined various options before trying to discharge your student loans in bankruptcy. Get all the documents you can that will help you show that you handled your student-loans in good faith and that you attempted to improve your financial situation. If you have special circumstances that hindered you in repaying your loan (illness, divorce, caring for an elderly parent, unemployment, etc.) gather the evidence that will help you.

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If you are not working or are working in a minimum-wage job, you should document all your efforts to get a job, including every job application you filled out and every job you have applied for.

If you have health issues, round up every shred of evidence you can that shows your health challenges. This would include doctor visits, documentation of diagnoses, prescription medications, x-rays–anything you have to show that you have suffered ill health. If you are disabled, bring documentation that shows your disability status.

Some judges will take a debtor’s testimony on health issues at face value, but some will want independent evidence. And you can bet that your opponent is unlikely to accept any argument that health challenges prevented you from paying off your student loans. In Myhre v. US Department of Education, DOE opposed bankruptcy relief for a quadriplegic who was working full time and was still unable to make ends meet.

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I know of two debtors who presented over a thousand pages of documentary evidence to support their request for student-loan relief. So be very diligent about gathering the evidence that will support your case.

Also, pull together evidence that shows exactly how much you originally borrowed, how much you paid on your loans, your interest rate, and how much your debt grew because of accruing interest and penalties. Don’t count on DOE or ECMC to do that for you.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

I have read many student-loan bankruptcy cases in which the judge cites the current amount owed but does not indicate how much more the debtor owes than the amount the debtor borrowed. Debtors often come into bankruptcy court owing two, three, and even four times what they borrowed because of accruing interest and penalties. The judge needs to know that. Some judges will do their own analysis but some don’t.

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If you are ready with your documentary evidence, that is a signal to DOE or the servicer that you are serious about your case and that you prepared before filing your adversary proceeding and that you have assembled lots of documentary evidence to support your case.

Finally, I think you need to know about favorable federal court rulings–especially those in your own jurisdiction. There are several opinions at the appellate court level that have interpreted the Brunner test sensibly and compassionately, but you can’t count on DOE or the loan servicer to make the court aware of those decisions.

And you need to remember that federal bankruptcy judges don’t see many student-loan adversary proceedings. They may not know the status of the law in your jurisdiction and some are inclined to accept DOE’s account of the law rather than do their own research. If you don’t have a lawyer or have a lawyer who doesn’t know about the favorable court decision, you will be at a severe disadvantage.

Prong 2 of the Brunner test requires the debtor to show that his or her financial situation is unlikely to change over the loan repayment period. DOE generally argues that everyone can afford to make monthly payments under an income-based repayment plan–which generally lasts for 20 or 25 years. But making token payments for 25 years is not repaying the student loan. And some courts have explicitly recognized the anxiety and psychological stress that a debtor feels who has student-loan debt that will never be paid back.

I wish you the best of luck.”

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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