By Daniel Gill
A loan to a student from her father for her education was discharged, or erased, by the student’s Chapter 7 bankruptcy, a Pennsylvania bankruptcy judge held.
Confronting a split in authority on the question, Thomas P. Agresti, U.S. Bankruptcy Judge for the Western District of Pennsylvania, followed the “narrow view” and determined March 7 that a parent’s loan isn’t excepted from bankruptcy discharge.
Thomas J. Nypaver took out a federal “Parent PLUS” loan for his daughter, Erin Nypaver, a music student at Seton Hill University. Erin signed a promissory note prepared by her father agreeing to repay him with interest.
Erin began making payments after graduating in 2014, but she defaulted. Her father sued in state court.
She filed Chapter 7 in 2016, which automatically stayed the state court litigation. After she received her discharge in bankruptcy, an order wiping out most of her debts, her father went back to state court and obtained a default judgment.
Erin moved to reopen the bankruptcy case and to determine the debt to her father was, in fact, discharged.
The court examined 11 U.S.C. §523(a)(8), the Bankruptcy Code section that provides that most student loans aren’t discharged.
The court ruled out two subparts. It wasn’t from a governmental unit or a non-profit company, and it wasn’t a qualified educational loan.
A “qualified educational loan” is determined by Section 221(d)(1) of the Internal Revenue Code. That section excludes loans from family members, including “ancestors.” The court said that “ancestors” includes parents.
Since it wasn’t an educational loan, the court had to determine whether the loan was “an obligation to repay funds received as an educational benefit, scholarship, or stipend.”
An obligation for an “educational benefit” is distinct from an “educational loan,” the court said. The loan to Erin from her father wasn’t the type of obligation meant for exception from the discharge under this section, like a scholarship or stipend, it held.
Lauren M. Lamb, Pittsburgh, represented Erin Nypaver. Thomas Nypaver was represented by Jason A. Spak, Pittsburgh.
The case is Nypaver v. Nypaver (In re Nypaver) , 2018 BL 77825, Bankr. W.D. Pa., 16-23381, 3/7/18 .
To contact the reporter on this story: Daniel Gill in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jay Horowitz at email@example.com
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)