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U.S. Supreme Court – Bankruptcy

United Student Aid Funds, Inc. v. Espinosa, 2010 WL 102, 7825 (U.S. March 23, 2010).

The debtor Espinosa filed a Chapter 13 bankruptcy in 1992. In his plan of reorganization, concerning four student loans totaling approximately $13,250, he “proposed to repay only the principal on that debt stating that the remainder, the accrued interest, would be discharged once Espinosa repaid the principal.”

United Student Aid Funds (United) filed a proof of claim for $17,832.15 which included the principal and accrued interest. United did not object to the debtors plan. The debtor completed the payments per his plan and received a discharge in 1997. In 2000, the U.S. Department of Education began to try and collect the unpaid interest on the loans from the debtor.

The Bankruptcy Court ordered all claimants to cease and desist their collection efforts against Espinosa. The District Court reversed the Bankruptcy Court; the 9th Circuit Court of Appeals reversed the District Court.

The Supreme Court unanimously affirmed the 9th Circuits decision. The court determined that the Bankruptcy Courts failure to find undue hardship before confirming the plan was a legal error, but was enforceable because United failed to timely appeal the order. The court found that where a party is notified of a plans contents and fails to object to confirmation of a plan before the time for appeal expires, that party has been afforded a full and fair opportunity to litigate, and the partys failure to avail itself of that opportunity will not justify relief.

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