The Bankruptcy Lawyers Blog

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Although a bankruptcy petitioner hoping to discharge student loan debts is required to commence an adversary proceeding to demonstrate undue hardship, both the 9th and 10th circuits rules in 1999 that--in specific cases, at least--creditors could not upset a confirmed plan if they'd failed to take timely action to protect their interests. In both of those cases, the debtor had failed to initiate an adversary proceeding, but had included discharge of student loan balances in the plan, along with a declaratory statement of undue hardship.

Over the past few years, though, other circuits have been chipping away--and sometimes directly contradicting--those rulings. Since 2002, the 4th, 6th, and 7th circuits have ruled that the creditor's due process rights require notice, and even heightening the notice requirement. Both the 9th and 10th circuits have altered their positions in later rulings as well, with the 10th circuit referring to its own prior case as "wrongly decided".

The 6th circuit, in ruling that a purported "discharge by declaration" was both invalid and void (and therefore subject to being set aside), noted that "astute attorneys now insert student loan discharge language...hoping to achieve preclusive effect" notwithstanding the requirements of a finding of undue hardship, the specific requirement of an adversary proceeding, and lack of notice.