LawyersUSA

A Chapter 7 debtor's obligation to pay half of the student loan debt accrued during her marriage wasn't extinguished by her ex-husband's failure to submit a contribution claim in her bankruptcy case, the 5th Circuit has ruled in reversing a bankruptcy order.

The debtor and her husband obtained several student loans through Sallie Mae during the course of their marriage. When they divorced, the debtor agreed to pay half of the student loan debt pursuant to the terms of a community property settlement agreement.

The debtor later filed for bankruptcy and obtained a discharge of debts.

When the debtor discontinued making payments for her share of the student loan debt, the husband obtained an order in state court compelling her to do so.

In response, the debtor sought relief in bankruptcy court, arguing that the husband's continued attempts to have her help pay off the student loan debt violated the discharge order in her Chapter 7 case. Specifically, the debtor argued that the husband had lost the right to seek contribution under the terms of the parties' settlement agreement by failing to file an exception to discharge in her bankruptcy case.

But the 5th Circuit concluded that the husband was not required to file a bankruptcy claim because the student loan debt was per se non-dischargeable because of the protection afforded student lenders like Sallie Mae under 11 U.S.C. §523(a)(8).

The court explained that under that section a "creditor need never file an exception to discharge, because bankruptcy law makes these and other §523(a) exceptions self-executing. Thus, a person like [the husband in this case], who derives his state law rights from a co-debtor's statutorily non-dischargeable debt to a §523(a)(8) creditor (here Sallie Mae), need not file an exception."

U.S. Court of Appeals, 5th Circuit. Aguiluz v. Bayhi, No. 06-30196. May 16, 2008. Lawyers USA No. 9939928. Click here for the full text of this opinion.