Creditors Should Read Their Mail

On March 23 the Supreme Court of the United States issued an opinion in a bankruptcy case that, in essence, says creditors need to read their mail. The case is United Student Aid Funds, Inc. v. Espinosa. Justice Thomas delivered a unanimous opinion.

The facts are fairly simple. Espinosa had several student loans that totalled $13,000. In his Chapter 13 plan he proposed to pay principal only, no interest, which resulted in a discharge of the interest. Normally, any discharge of any part of a student loan requires an adversary proceeding and a finding of a "hardship discharge." In this case, neither the creditor nor the trustee objected to Espinosa's plan. Espinosa completed his plan and received a discharge.

Several years later, United Student Aid Funds attempted to collect by garnishing Espinosa's tax refund. Espinosa responded by reopening his bankruptcy case to obtain an order prohibiting United Student Aid Funds from trying to collect. The case eventually worked its way to the Supreme Court. There were several complicated legal issues involved in the case, but the bottom line is, where a creditor admittedly received a copy of the plan and failed to object, it can't come back years later and ask the court to fix its mistake.