Guarantor May Contest Dischargeability of Student Loan

Posted by NCBRC - May 10, 2018

A guarantor on a student loan is an “accommodation party” who comes within the purview of the student loan nondischargeability provision when she is required to pay the loan on behalf of the debtor. De la Rosa v. Kelly (In re Kelly), No. 17-32295, Adv. Proc. No. 17-3320 (Bankr. S.D. Tex. March 23, 2018).

Mary De la Rosa was the guarantor on a student loan acquired by her friend and fellow church member, Tabitha Kelly. When Ms. Kelly defaulted on the loan, the lender sued Ms. De la Rosa and she paid the debt pursuant to a state court judgment. Ms. Kelly and her husband later filed for chapter 13 bankruptcy and Ms. De la Rosa filed an adversary complaint seeking to have the debt deemed nondischargeable under section 523(a)(8)(A)(ii).

The question before the court was whether Ms. De la Rosa, as an “accommodation party” under Texas law who did not personally benefit from the loan, could benefit from the nondischargeability provision. In finding that she could, the court discussed the analogous cases of Benson v. Corbin (In re Corbin), 506 B.R. 287 (Bankr. W.D. Wash. 2014), and Brown v. Rust (In re Rust), 510 B.R. 562 (Bankr. E.D. Ky. 2014), where the courts were persuaded in large part by congressional intent to expand protection of student loan creditors to nongovernmental lenders when it enacted section 523(a)(8)(A)(ii).

In Corbin, the court found the student loan debt paid by the guarantor was nondischargeable as between the debtor and the guarantor because “the provision of an accommodation, in order to secure for a student funds for the purpose of paying educational expenses, gives rise to an obligation on the part of the debtor to repay funds received as an education benefit once the co-signer is required to honor its obligation to pay the debt.” Likewise, the Rust court found that because many student loan lenders will not advance the loan without the signature of a guarantor, treating the debt to the guarantor as nondischargeable furthers congressional intent to make student loans available to those who might otherwise be unable to obtain one.

The court found the debt nondischargeable. It declined, however, to award attorney’s fees to Ms. De la Rosa in the absence of any basis for deviating from the American Rule.

De la Rosa Bankr SD Tex opinion March 2018


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