Student loans consolidated after filing cannot be discharged even on a showing of “undue hardship,” for reasons explained by Bankruptcy Judge Shad M. Robinson of Austin, Texas.
The debtor filed a chapter 7 petition with a passel of student loans totaling more than $480,000. Within three months, the debtor received his general discharge, and the case soon closed. Of course, the student loans were not discharged.
More than three years after discharge, the debtor consolidated the student loans with the same lender. Four years after discharge, the debtor reopened his case and filed an adversary proceeding to discharge the consolidated student loans for allegedly being an “undue hardship” under Section 523(a)(8).
In his September 26 opinion, Judge Robinson noted that the consolidated loan “extinguished and paid off” the student loans that had been outstanding when the debtor filed his chapter 7 petition.
The lender filed a motion for summary judgment to dismiss the adversary proceeding, contending that the consolidated loan was a post-petition obligation that the debtor could not discharge. Judge Robinson agreed.
Addressing the merits, Judge Robinson first cited Section 727(b), which says that a discharge “discharges the debtor from all debts that arose before the date of the order for relief under this chapter.” [Emphasis added.] He held that “the proceeds of the Consolidation Loans did not arise before the date of the order for relief as required by 11 U.S.C. § 727(b),” because “the Consolidation Loans were new and distinct postpetition debts.” [Emphasis in original.]
Judge Robinson buttressed his conclusion by referencing applicable regulations. One says that existing student loans are “discharged” when a consolidated loan is granted. Another regulation requires the new lender to notify the borrower that the prior loan was paid in full.
Judge Robinson granted the lender’s motion for summary judgment dismissing the adversary proceeding. He held that “the Consolidation Loans are postpetition debts that are nondischargeable as a matter of law under 11 U.S.C. § 727(b).” He thus never reached the question of whether the consolidated loan represented “undue hardship.”
In a footnote, Judge Robinson rejected the debtor’s contention that the consolidated loan should be considered a pre-petition debt because the pre- and post-petition lender was the same institution. He said that a consolidated loan “is a new debt, even if the lender remains the same.”
Student loans consolidated after filing cannot be discharged even on a showing of “undue hardship,” for reasons explained by Bankruptcy Judge Shad M. Robinson of Austin, Texas.
The debtor filed a chapter 7 petition with a passel of student loans totaling more than $480,000. Within three months, the debtor received his general discharge, and the case soon closed. Of course, the student loans were not discharged.
More than three years after discharge, the debtor consolidated the student loans with the same lender. Four years after discharge, the debtor reopened his case and filed an adversary proceeding to discharge the consolidated student loans for allegedly being an “undue hardship” under Section 523(a)(8).