Well not exactly. As much as many of us would like to hear that phrase, a recent supreme court ruling on the matter won't give rise to wild celebrations in the streets. However, what the supreme court ruled this past week has made it somewhat easier for people who cannot repay their student loans to receive bankruptcy protection.
The facts of the case involved Francisco Espinosa, an airline ramp agent who took out student loans in 1988 and 1989 for a total of $13,250 in order to attend a trade school. Four years later, he filed for bankruptcy protection, proposing to repay the principal over five years without interest.
So far so good, but here comes the wrinkle. Neither Francisco nor the Judge followed the procedures required by the law. Chapter 13 of the bankruptcy code allows for student loans to be discharged only if the bankruptcy judge finds that the repayment would impose an "undue hardship." But the judge in this case did not make such a finding. Francisco did his part by failing to notify the lender by service of summons and complaint. Things get interesting because the lender was aware of what was going on and had notice of the proceeding, and they did not object or appeal what the court was doing.
Francisco finished paying the principal in 1997 and the bankruptcy court then discharged the interest he owed. After all of this the lender then tried to re-open the case. The lender and much of the student loan industry argued that upholding the lower courts ruling would open the flood gates of allowing people to avoiding paying their debts.
The court did not agree and ruled on a narrow ground that the lender had notice and waited too long to appeal. So the real question is what happens from this point forward and how much easier it will be to get bankruptcy protection for the repayment of student loans? The feeling right now among many is that this case will not be a game changer, especially if its to be read narrowly as the court has expressed.