South-Western Legal Studies in Business

Student Debt Obligation Not Relieved Unless Undue Hardship Shown
Description Appeals court held that a bankruptcy court improperly absolved a student loan debtor of the remaining balance on a debt. Such debts are not absolved unless there is a hearing on the matter involving the creditor and debtor, where the debtor proves undue hardship.
Topic Bankruptcy
Key Words Chapter 13; Student Loan; Undue Hardship; Improper Release
C A S E   S U M M A R Y
Facts Hanson borrowed money from 1980 to 1987 to finance his college education. He defaulted on the student loans in 1989 and the creditor obtained a default judgment against him in 1992 in the amount of $31,583.77. Hanson filed for Chapter 13 relief, which was granted. He was to pay $135 monthly for 60 months to begin to chip away at the debt. Those payments were completed in 1997. The bankruptcy court declared Hanson to have fulfilled his obligations. The creditor protested that the court was in error, as it never agreed to forgive the remaining balance due on the debt. The district court modified the bankruptcy court order, requiring Hanson to repay the remainder of the debt. He appealed.
Decision

Affirmed. The order purporting to discharge the remainder of the student loan debt was in error. Unless Hanson can show undue hardship at a hearing specifically to address the student loan, he is liable for the remainder of the debt. The 60-month repayment period was not intended to eliminate the debt, only provide a time for Hanson to deal with the problem. The Bankruptcy Code is explicit about such matters and the debt cannot be extinguished without a specific hearing on that matter, which was not done.

Citation In re Hanson, 397 F.3d 482 (7th Cir., 2005)

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