In an opinion written by United States Chief Bankruptcy Judge Dale Sommers in Kansas Navient was just slapped down a bit.
In 2012 I first started talking about the fact not all student loans are protected in bankruptcy. Since then there have been efforts by some, especially attorney Austin Smith to get the courts to recognize a technical issue, § 523(a)(8).
For more on this very technical issue and why section of 523(a)(8) is important in the discharge of student loans, see the article Austin Smith wrote, The Misinterpretation of 11 U.S.C. § 523(a)(8).
Lenders of private student loans have used section 523(a)(8) as a blanket cover for why their loans should never be challenged for bankruptcy discharge.
Opinion Shifts Duty to Prove
In my time, shifts in law that swing in the favor of consumers are small and incremental. In the case Love v. United States Department of Education and Navient Solutions, it appears this has happened.
In January of 2020, debtor Rodget Love filed his own adversary proceeding regarding the discharge ability of his student loans.
Love said at the time he owed Navient $32,000 in Chase private student loans that were bought and/or owned by Navient.
Additionally, he owed $36,000 to Navient for a Tuition Answer loan. These Tuition Answer loans have been questionable for years. Even Navient admitted they might not be protected from bankruptcy.
In this recent Opinion, the Judge wrote that the burden of proof that a loan is protected from discharge is the responsibility of the creditor.
Navient objected to having to prove the private student loans were not dischargeable. The Judge wrote, “Debtor’s position that Navient has the burden to establish that the challenged loans are within the exception to discharge enumerated in § 523(a)(8) is well supported by case law. A practice guide states, “Burden of proof in dischargeability cases involving student loans is split between parties and once creditor establishes that student loan debt exists and is of the type ordinarily excepted from discharge loan, burden of proof shifts to debtor to show nondischargeability on grounds of ‘undue hardship.”
The recent Opinion the Judge also mentions another Navient case. In McDaniel v. Navient Solutions the Tenth Circuit Court of Appeals held “[t]he burden is on the creditor to show a debt is nondischargeable under § 523(a).”
The Judge was not pursuaded the burden of proof for discharge shifted to the person filing the petition: “For the foregoing reasons, the Court finds that Navient has the burden of proof to demonstrate that § 523(a)(8) applies to the loans that Debtor asserts are dischargeable for the reason that they do not fall within the various categories of debts excepted form discharge by § 523(a)(8).”
If this becomes the standard, it gives consumers a bit more power for Navient to prove the loans are protected from discharge in bankruptcy rather than the debtor having to prove they are eligible.
It will be interesting to see how Navient can defend loans it already admitted to investors were not protected from bankruptcy discharge when it said, some of their private student loans “were primarily made at schools not eligible for Title IV loans.” Navient also stated some private student loans, “may be subject to some additional risk that the loans were not used for qualified education expenses and thus could become dischargeable in a bankruptcy proceeding.”
You can read the full opinion below.