Bankruptcy–Dear Colleague Letter GEN-95-40, dated September 1995

A borrower may also have his or her loan discharged in bankruptcy.

A federal student loan is not dischargeable in bankruptcy unless

- the loan has been in repayment for at least 7 years, excluding any periods of deferment or forbearance (“suspended repayment”) or

- the bankruptcy court has determined that repayment of the loan would cause an undue hardship to the debtor and his or her
dependents.
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http://www.abajournal.com/mobile/comments/supreme_court_rules_for_student_seeking_discharge_of_loan_debt/

Supreme Court Rules for Student Seeking Discharge of Loan Debt
By Debra Cassens Weiss
Mar 23, 2010, 10:00 am CDT

The U.S. Supreme Court has ruled on behalf of a litigant seeking to discharge the interest on his student loans in bankruptcy.

In a unanimous opinion, the court said the bankruptcy court could discharge the debt even though the former trade school student, Francisco Espinosa, had failed to allege undue hardship, SCOTUSblog reports.

The opinion by Justice Clarence Thomas said the bankruptcy judge should not have approved the bankruptcy plan absent proof of undue hardship, but the error was not serious enough to void the agreement, the Associated Press reports.

The lender did not object to the plan before its approval.

The lender later sought to void the bankruptcy judge’s order under Federal Rule of Civil Procedure 60(b)(4). But “Rule 60(b)(4) does not provide a license for litigants to sleep on their rights,” Thomas wrote in his opinion for the court.

“Where, as here, a party is notified of a plan’s contents and fails to object to confirmation of the plan before the time for appeal expires, that party has been afforded a full and fair opportunity to litigate, and the party’s failure to avail itself of that opportunity will not justify Rule 60(b)(4) relief.”

The opinion (PDF) is United Student Aid Funds v. Espinosa.

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