Vincent Howard and our Rubidoux personal bankruptcy attorneys have written recently about the difficulties faced by bankruptcy filers who are seeking an "undue hardship" discharge of their student loans. The relatively new practice of requiring a show of undue hardship has attracted criticism, because it expands a protection for the federal government to private companies that consider risk differently and don't answer to taxpayers. That's why we were interested to see a related issue in the First U.S. Circuit Court of Appeals with Hann v. Educational Credit Management Corp.. ECMC filed a proof of claim in Barbara Hann's Chapter 13 bankruptcy, and she objected because she believed the loans were paid off. The bankruptcy court sustained the objection, but ECMC retried to collect after her bankruptcy was closed, leading the bankruptcy court to sanction it. The First Circuit upheld that ruling.
As a law student, Hann, of New Hampshire, took out three federal Stafford loans totaling $22,500, which debt was later assigned to ECMC. She contends that she has paid off these loans, and in the time leading up to her 2004 bankruptcy, tried unsuccessfully to get ECMC to acknowledge this. After her bankruptcy filing, ECMC filed a proof of claim with an incorrect principal amount, supported by documents showing the correct amount. Hann objected. ECMC did not show up to the hearing on Hann's objection, and the bankruptcy court ultimately allowed the claim in the amount of $0. ECMC didn't respond, but after her bankruptcy ended, it resumed attempts to collect on the loans. Hann then reopened her bankruptcy case in order to file an adversary complaint against ECMC. ECMC attended this hearing, arguing that the previous order disallowing its claim had not settled what Hann owed or discharge it. The bankruptcy court agreed with Hann that the previous order established that the debt was paid, and awarded her costs and fees.
ECMC appealed unsuccessfully to the Bankruptcy Appellate Panel of the First Circuit, then appealed that order to the First Circuit. That court also affirmed. After reviewing prior arguments about dischargeability, the First concluded that the issue is whether the bankruptcy court's original order disallowed ECMC's claim on the ground that Hann had already paid her loans. If so, arguments about the dischargeability of the "debt" were irrelevant, the court said. ECMC insists that the order didn't make a factual determination about whether the loans were paid, but simply ruled the ECMC couldn't collect anything by saying the claim was allowed in the amount of $0. The First agreed with ECMC that bankruptcy courts ought to plainly state the reasons for disallowing claims, but disagreed that it couldn't look into the reasons without such clarity. Scrutinizing the record, it agreed with Hann that the order was based on the bankruptcy court's belief that the loans had been repaid. It then upheld sanctions for abuse of the bankruptcy process.
Vincent Howard and our Westminster consumer bankruptcy lawyers are pleased to see this victory for the debtor, who apparently spent well over a decade attempting to get ECMC to recognize that her loans were paid off. As a general rule, creditors that attempt to collect debts already handled during a bankruptcy can expect sanctions. In fact, bankruptcy affords a certain amount of protection from creditors as soon as the person files--which is one reason bankruptcy is attractive to people with a lot of credit card or other unsecured debt. If a debt collection agency attempts to collect after the bankruptcy is filed and the automatic stay is in place, you can sue and often collect a settlement. The money is useful to the bankruptcy estate--and it gets the debt collector off your back, and hopefully stops future abuses. That's why Vincent Howard and our Claremont individual bankruptcy attorneys advise our clients to pursue debt collection violations.
If you're tired of fighting off abusive and harassing debt collectors and you're ready to discuss a bankruptcy, don't hesitate to call Howard Law, P.C. You can reach us through our website or at 1-800-872-5925.
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