Second Circuit follows other recent Circuit opinions Re: Private student loan repayment | Bradley Arant Bowl Cummings LLP

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The Second Circuit followed the lead of the 10th and 5th Circuits in affirming a bankruptcy order in respect of private student loans pursuant to 11 USC § 523 (a) (8). IN Homaidan vs. Navient et al.., ultimately the court ruled that the exception to the statement of the wording – “obligation to return funds received as an educational grant, scholarship or scholarship” – does not apply to private student loans. This follows from similar results from Tenth arrondissement and Fifth circuit

Background

Homaidan took out interest-bearing student loans of over $ 12,000 from Sallie Mae Inc., Navient’s predecessor. After graduation, Homaidan filed for Chapter 7 bankruptcy in the Eastern District of New York and was ordered to resign. The order did not specify what debts were paid off, but only noted that some “general types of debts”, including “[d]ebts’s Most Student Loans “were unredeemable in Chapter 7 litigation. Homaidan later paid off the loans in full,” mistakenly believing that he had a legal obligation to do so. ” In 2017, he reopened the bankruptcy case to find out if the loans had been repaid and filed a lawsuit. After Navient filed a petition for rejection, the bankruptcy court ruled that “both in terms and in context, [$523(a)(8)(A)(ii)] does not pay off all education-related debts ”.

Statutory interpretation of the court

The question before the court was whether the private student loans in question constituted an “obligation to repay funds received as an educational benefit”, which should be exempted from discharge under § 523 (a) (8) (A) (ii). Navient argued that the loan agreement in question was a “commitment to pay funds” that were received for educational purposes, making them an “educational aid.” The court disagreed, stating that the phrase “an obligation to pay the funds received as an educational grant” would be “an unconventional way of discussing a loan,” as the bankruptcy court put it. According to the court, “if Congress had intended to exclude all education loans from the statement in accordance with § 523 (a) (8) (A) (ii), it would have done so in such a grandiose environment” and “there are educational benefits , students may be required to pay benefits – such as conditional scholarships – which is more naturally in line with the text of the law. “

The court further assessed and rejected other arguments put forward by Naviente regarding the interpretation of the law, pointing out that Congress used the word “loan” elsewhere in § 523 (a) (8) and that the expanded reading offended the canon of surplus by absorbing it. other sections of § 523 (a) (8). It took extra space to detail the “evolution” of § 523 (a) (8) with the Bankruptcy Prevention and Consumer Protection Act 2005 to show that this section is not comprehensive for education loans.

Ultimately, the court settled on a narrower interpretation, according to which “§ 523 (a) (8) (A) (i) applies to government and non-profit loans and overpayment of education benefits; § 523 (a) (8) (A) (ii) applies to scholarships, scholarships and conditional education grants; and § 523 (a) (8) (B) applies to private loans made to individuals attending eligible schools to meet certain qualified expenses. ” He concluded by stating that “[e]work manual ”-“ best read to denote conditional grant payments, similar to fellowships and fellowships. ”

How McDaniel and Crocker business up to him, Second District Homaidan The opinion reflects the growing trend of allowing the debtor to repay certain private student loans. Private student loans and service providers should be aware of this final chapter and prepare for similar challenges.

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