Woman Can’t Wipe Out Student Debt Owed to Former In-Laws

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By Diane Davis

A Chapter 7 debtor can’t get student debt wiped out because she failed to litigate the issue in a state court proceeding, the U.S. Bankruptcy Court for the Eastern District of Michigan held.

The default judgment Maria Romo’s former in-laws obtained in state court “closes the door” to the debtor and her argument that the debt wasn’t enforceable, Judge Daniel S. Opperman said May 14. Collateral estoppel prevents an issue to be relitigated when the action is the same between parties, the earlier proceeding led to a valid final judgment, and the parties had a fair opportunity to litigate it, the court said. Romo had a “full and fair opportunity” to litigate the issue in state court but “chose not to do so,” the court said.

She incurred significant student loan debt to obtain two degrees. The U.S. Department of Education offered loan forgiveness if she paid $105,000.Romo’s former in-laws paid the debt and a cryptic receipt of the transaction required her to pay them $400 every two weeks.

After Romo divorced and defaulted on the loan, the former in-laws sued her in state court for the $83,450 still due, and obtained a default judgment.

Romo filed Chapter 7. The former in-laws said the debt can’t be discharged under Bankruptcy Code Section 523(a)(8). The court wasn’t able to decide whether the debt was enforceable because of the state court judgment.

Michael J. Shovan, Saginaw, Mich., represented Romo in her Chapter 7 case.

Ramani v. Romo (In re Romo) , 2018 BL 172974, Bankr. E.D. Mich., 17-21440-DOB, 5/14/18 .

To contact the reporter on this story: Diane Davis in Washington at ddavis@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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