The 9th Circuit Court of Appeals reiterated the necessity for creditors to thoroughly review all Chapter 13 plans for any “traps” that may bind them in an opinion issued recently that allowed the debtor to discharge their student loans through plan confirmation.

Under the bankruptcy code, most student loan debt is non-dischargeable unless requiring the debtor to keep the debt would impose an undue hardship on the debtor.  The 9th Circuit(1) found that if the creditor has received proper notice of the plan and the creditor does not object, the debt could be discharged.  The Court stated that student loan creditors have a “full and fair opportunity to insist on the special procedures available to student loan creditors by objecting to the plan on the ground that there has been no undue hardship finding.”

This case is significant because the Court is stressing the “you snooze, you lose” policy. It is important for all types of creditors to review plans and timely object no matter what protective statute exists in the code. Although some circuits still do not allow the discharge of student loan debt without the proper procedure, notice and finding of undue hardship, this 9th Circuit decision is a good reminder to always review the plan and have your radar up for tricks to circumvent the bankruptcy code.

(1)Espinosa v. United Student Aid Funds Inc., 545 F.3d 1113 (2008)