Student Loan Discharge In Bankruptcy: New Developments

• Jurisdiction: California,United States
• Law Firm: Cullen and Dykman
• Subject Matter: Accounting and Audit, Insolvency/Bankruptcy/Re-structuring, Accounting Standards, Insolvency/Bankruptcy
• Author: Mr Michael Traison
• Published date: 19 May 2023

A recent California Bankruptcy Court decision, Love v. U.S. (In re Love), contributes to the body of law on the discharge of student loan debt as we have examined in a series of prior client alerts. Love v. U.S. (In re Love), No. 19-20532-C-7, 2023 WL 2787295 (Bankr. E.D. Cal. April 5, 2023). A review of our previous alerts discussing the dischargeability of student debt provides a helpful background.¹

Under the Bankruptcy Code, the discharge of debtor liabilities is paramount in providing debtors with a "fresh start," sometimes subject to limitations, as we have routinely seen with student loan debts. While generally, the question of dischargeability of student debt has been grimly resolved, United States Bankruptcy Judge Christopher Klein's decision in In re Love appears to be designed to challenge the perception that student loan debt is practically nondischargeable. In re Love, 2023 WL 2787295 at *1. In his opinion, Judge Klein takes the opportunity to assess Debtor Christine Love's claim of undue hardship in a virtually appeal-proof decision, paving the way for some certainty in future student loan debt discharges.

In his decision addressing the routine reversals of student loan debt discharges, Judge Klein recognized the paradoxical nature of the preponderance standard of proof for discharge under the "undue hardship" test and the seemingly incompatibly low number of debtors qualifying for such a discharge. In a thorough review of Ninth Circuit caselaw, Judge Klein largely credits this discrepancy to the incorrect appellate standard of review employed for mixed questions of law and fact. Id.

For some time before Judge Klein's decision in In re Love, appellate courts looked to the legal character of mixed questions in order to unilaterally expand their non-deferential de novo review of legal issues to factual issues in dischargeability claims. Putting an end to the unauthorized use of de novo review by appellate courts, Judge Klein turned to the Supreme Court's decision in U.S. Bank National Association v. Village at Lakeridge, LLC, 138 S. Ct. 960 (2018) to establish the "clear error" standard of review as the proper standard when assessing mixed questions of law and fact where the factual analysis predominates.

Relying on the Supreme Court's distinction between a "question [that] requires courts 'to expound on the law'" and a question that "immerses courts in case-specific factual issues," Judge Klein established that questions of undue hardship...