WASHINGTON (AP) — The Supreme Court will decide whether student loans can be dismissed through bankruptcy with just a notice to the collector instead of a hearing proving that paying the money back would cause an "undue hardship."
Francisco Espinosa gave United Student Aid Funds Inc. a Chapter 13 bankruptcy plan saying he would pay back $13,250 on his four student loans. The recipient, USA Funds, said he owed $17,832, but it did not object to his bankruptcy plan, which was finalized in 1994.
But in 2000, Espinosa's income tax refund was taken to pay on the rest of the debt.
USA Funds says the bankruptcy agreement is void because Espinosa never proved in court that paying the full amount would cause him undue hardship.
Espinosa says the bankruptcy agreement is final and the company cannot go back on it now. The 9th U.S. Circuit Court of Appeals in San Francisco agreed, saying the time to object was before the bankruptcy was completed.
The case is United Student Aid Funds v. Espinosa, 08-1134.
Copyright 2009 The Associated Press.
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