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What Happens When Nondischargeable Student Loan Is Later Determined to Be Dischargeable?
One of the key aims of the bankruptcy process is affording debtors a "fresh start" by granting them a discharge of their debts, However, the Bankruptcy Code has excepted certain debts that are incapable of being discharged as a matter of right, including, without limitation, certain "qualifying" loans used to fund a debtor's education. For a debtor to be able to receive a discharge of such loans, the debtor must file a lawsuit and obtain a judgment determining their dischargeability.
In the case of In re Irigoyen, the U.S. Bankruptcy appellate panel for the U.S. Court of Appeals for the Ninth Circuit addressed a matter of first impression associated with this process: namely, the issue of what happens when a debt that may be considered nondischargeable is later determined to be dischargeable, and more importantly, whether efforts to collect such a debt be exempt from penalties for violating the discharge injunction.
Facts and Procedural History
In this case, Reanna Leigh Irigoyen, the debtor in this case, borrowed funds to finance her education from a traditional student lender. The debtor disputed certain amounts with respect to this loan and commenced litigation in connection with the same. In order to finance that litigation, the debtor obtained a separate loan from 1600 West Investments LLC, a for-profit lender. That loan was later assigned to White Knight Funding LLC (White Knight, and together with 1600 West, the lenders).
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