What I Learned as an Attorney From Discharging Student Loans in Bankruptcy

I asked attorney Lindsay Smith for some feedback to share with you about her experiences in representing consumers against student loan companies.

1) What did you learn from defending a recent consumer against a student loan company?

I learned:

a) Not to assume that all student loans are “next to impossible” to discharge in bankruptcy absent showing a hardship discharge;

b) Not to give up just because the majority of cases are against your client if you believe that that there is a good reason to rule in your client’s favor;

c) To meticulously research not only all of the “good” cases, but also every “bad” case related to your client’s case to find factual and/or legal differences even if the “bad” cases appear to be insurmountable. (I think that this made my case–my ability to distinguish the numerous cases the school used in their favor. Even the Judge said in his Decision “At first blush it would appear that the issue is well settled in Meridian’s favor because case after case deals with…”). I can’t tell you how many hours I spent carefully reading all of the cases, a number of times, to be able to distinguish them.

d) To read each and every word of the statute that your case hinges upon. Just the words “funds received” (from 523(a)ii) really won my case as there were no “funds received.”

e) Not to let senior attorneys bully me around and not to make the assumption that they know more than me (the opposing counsel has been practicing for 32 years–I’ve been practicing for 6 years);

f) Not to assume that just because the amount in controversy is fairly minimal that the party bringing the suit will be open to settlement.

Although my client only owed the school about $7k and we offered to pay the school to settle, the school apparently felt that they had a rock-solid “slam dunk” case and felt no reason to settle.

Their initial attorney was open to settlement. However, the school abruptly substituted new counsel in. When I asked new counsel if we were still going to be working out a settlement, he told me under no uncertain terms “no–it’s non-dischargeable.” I tried to persuade him to settle so that the parties didn’t incur a lot of legal fees to fight over a $7k debt, but he was not at all open to settling.

Based on my mistaken assumption that the school would likely settle due to the minimal amount in controversy, when the Adversary Proceeding was filed, I told my client that although billing her hourly, I’d bill her no more than $2k as that’s all she said that she had to fight the school’s Adversary Proceeding. As it turned out, I have well over $17k in attorney fees on this case–and that’s just what I kept track of. I spent much more time that I didn’t record as a lot of it was spent getting up to speed on student loan discharge in general and the litigation process in general). Lesson learned–don’t assume that opposing counsel will be open to reasonable settlements to try to minimize costs to our clients;

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2) Would you do it again?

Yes, but only with a reasonable retainer fee. This is the problem for most students–they can’t afford to pay an attorney to litigate these things, even if they can find somebody who has sufficient experience to handle the job (or enough time to learn how to handle it). I sacrificed several weekends with my family in order to work on this case. I usually worked on it on the weekends as I had too much on my plate during the work week to be able to focus 100% on this matter. Litigating this case required my full attention with no distractions, such as ringing phones, other deadlines, etc.

Although I feel that changes need to be made with respect to discharging private student loans in bankruptcy and would love to be able to devote time to “fighting for the underdogs”, the fact of the matter is that I’m a small firm with a very heavy bankruptcy case load, as well as a single mom. Unfortunately, I can’t afford to litigate these cases for free. They’re extremely time consuming. You may get lucky and the school doesn’t oppose your AP and you win by default. That’s the ideal scenario. But, if that doesn’t happen, I think that the student is in for a fight and needs to be prepared to finance that fight or have some other sort of help with it.

3) Did the lender fight hard to avoid a loss?

Absolutely! For quite some time, I couldn’t get the school to Stipulate (agree) to some facts which should’ve had no opposition. For example, when I requested them to agree that the school is not a Title IV-D school, they stated that they’d agree that the school is a Title IV-D school, even though it says right on the school’s website (a link to the school’s annual report on the CA Dept of Consumer Affairs Bureau for Private Postsecondary Education) that they are not a Title IV-D school. It wasn’t until I requested a conference with the Judge regarding their lack of responsiveness to my Request for Admissions, that they revised their responses to give me reasonable responses.

Although there were no factual issues at all, they dragged my client and I through a grueling deposition that lasted most of the day and made my client break down in tears half way through it. My guess is that they were (and are) fighting so hard on this because they fear that other students will follow suit. Moreover, there is another similar AP pending in this jurisdiction filed by the school with another Judge where the student owes over $100k. The school just filed a Notice of Appeal last week. It will be heard by the 9th Cir. BAP.

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4) Although this case will hopefullhy help students where their private, non Title IV-D, for-profit school financed their education and gave the student no funds directly nor any third party, it is not going to help those who have a federally backed/Title IV-D student loan or those who have private loans where funds were received by the student or a third party. My advice to those who cannot use the Christoff case to help discharge their student loans via bankruptcy would be to apply for the IBR or ICR program, or the Public Service Loan Forgiveness (if they qualify) or an Administrative Discharge (if they qualify based on disability or false certification or school closure). Of course, if they have a reasonable chance at getting a hardship discharge through bankruptcy, I recommend that they try to do that, provided that they either have sufficient funds available to pay an attorney on an hourly basis or if they are prepared to handle it in Pro Per.

5) What advice do you have for other bankruptcy attorneys regarding consumers with this type of debt?

I would advise them to carefully read the statute and the cases before they quickly dismiss the idea of helping a client discharge their student loan debt. After doing so, if it appears that bankruptcy is not a viable option to help with the debt, refer them to helpful resources like this site.

Attorney Lindsay Smith can be contacted at:

Wine Country Family Law & Bankruptcy Office
A Professional Law Corporation
Mailing address: P.O. Box 262, Cloverdale, CA 95425
Phone: 707-669-0841 Fax: 707-450-1956


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4 thoughts on “What I Learned as an Attorney From Discharging Student Loans in Bankruptcy”

  1. Great advice and great article. Thanks for sharing. I had a client with almost 500,000 in student loan debt, private and federal. We were able to get a good result fortunately based on the facts of the case. I agree that more people should challenge their loans in bankruptcy. Unfortunately, too many bankruptcy lawyers simply believe all loans are not disichargeable under any circumstances. The truth is, if someone has student loans, it’s a very time intensive inquiry to determine what are their best options.

      • Well it may be a matter of them looking at the Bankruptcy Code and not looking at actual caselaw. If you look at just the Code language, you would shy away from most student loan cases. Plus, look at how hard it was for Ms. Smith: lost weekends & she took a huge hit on her fees. Lawyers have to watch the bottom line just like any other service professional. Consumer bankruptcy lawyers are typically very small firms that can’t afford to litigate these cases for free or even at vastly reduced rates.


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