Bankruptcy Judge Discharges All NCSLT Student Loans

Here is a very interesting bankruptcy case from earlier in 2020. Judge Jennemann had no patience for National Collegiate Student Loan Trust and eliminated the private student loans in full. She also awarded attorney fees to the consumer as well.

This case shows, if a creditor claims your private student loans are exempt from discharge in bankruptcy, that is not always true.

Ortiz had four loans labeled “undergraduate loans.” She had received scholarships and grants that paid 100% of her education costs, including tuition, fees, and other related expenses.

The loans were serviced for a time by American Education Services (“AES”).

The court documents state:

“Debtor filed this Chapter 7 bankruptcy case on June 16, 2010 (“Petition Date”). On June 19, 2010, the Court served the Creditors and AES with notice of Debtor’s bankruptcy filing. The notice warned Creditors to refrain from further collection efforts against the Debtor. And, on October 6, 2010, the Debtor received a Discharge, discharging her from all debt. In connection with the Discharge, the Court sent Creditors a notice stating any attempt to collect a debt that has been discharged is prohibited.

After the Discharge, Creditors continued to contact Debtor demanding payments on the Personal Loans. Creditors demanded the payments via telephone, letters, and state court lawsuits. Creditors also continued to report the Personal Loans as unpaid and delinquent in the Debtor’s credit report. Between June 2010 and January 2015, due to the Creditors’ collection efforts, the Debtor paid Creditors $21,282.76. Debtor filed her Motion seeking a finding of contempt and sanctions against the Creditors for continuing collection efforts on the discharged Personal Loans. Creditors failed to respond to Debtor’s Motion or appear at the trial on December 17, 2019.”

“The Personal Loans do not qualify as exempt debts. The Personal Loans are not federal or non-profit loans, funds received as an educational benefit, or qualified education loans made by a private lender. The Creditors cannot classify the Personal Loans as nondischargeable debts by simply labeling them as “undergraduate loans” on the credit agreements.

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“Debtor contends each of these four Personal Loans are not federally guaranteed educational loans as defined in 11 U.S.C. § 523(a)(8) and are dischargeable in the bankruptcy case.

After careful consideration of all the facts, this Court finds the Creditors violated the discharge injunction. The Creditors are in contempt of court and sanctions shall be imposed. The Creditors are in contempt for their repeated attempts to collect and eventual collection of a portion of discharged debts. The Creditors knew or should have known that the Debtor’s loans were dischargeable consumer debts. This Court’s Discharge Order explicitly advised the Creditor that “[a] Creditor who violates this order can be required to pay damages and attorney’s fees to the debtor”.”

“Here, Debtor has established, with clear and convincing evidence, Creditors’ violation of the discharge injunction. The Creditors were duly noticed of the Debtor’s Discharge. Despite multiple valid and unambiguous warnings, the Creditors repeatedly demanded and accepted payments for the debt. Further, the Creditors filed four state court actions against the Debtor to collect on the debts after Debtor received a Discharge. The Creditors knew or should have known that they were attempting to collect a debt that cannot be legally enforced or collected. Creditors have failed to file a response or make an appearance to oppose the Debtor’s allegations.

The Debtor sustained a loss of $21,282.76 for payments on the Personal Loans, mental and emotional distress, suffered a lack of credit due to the negative information placed on her credit report, and incurred attorney’s fees and costs due to the Creditors’ contemptuous conduct. Creditors repeated demands and threats of litigation coerced Debtor into paying $21,282.76 and directly caused Debtor’s mental and emotional distress. Debtor received numerous phone calls and letters after her discharge. Creditors exacerbated Debtor’s mental and emotional distress by filing four state court actions against the Debtor which increased Debtor’s anxiety and resulted in a loss of sleep.

This Court finds the Debtor is entitled to $21,282.76 for payments on the Personal Loans and $10,000 in damages for the Debtor’s mental and emotional distress. The Court also finds Creditors must pay Debtor $6,965 in attorney’s fees and $339.66 in costs totaling $7,304.66. Debtor’s counsel spent a total of 18.9 hours at a rate of $350.00 per hour on the four state court lawsuits as well as this bankruptcy case.”

“The Creditors, composed of four separate trusts, are jointly and severely liable to Debtor. This Judgment shall bear an interest rate of 7.24% starting the date of this Order.”

The loans were originally labeled as issued by Chase Bank, Bank of America,and Union Federal Savings Bank and then assigned to assigned to National Collegiate Student Loan Trust 2005-1, 2006-1, 2006-2, and 2007-3.

They followed the same confusing route I wrote about here.