Around here we are very familiar with the phenomenon of debtors who at some point just give up and stop opening their mail. Every week, they bring in the unopened bills, and I open them and add them up!
But what about a creditor who misses something important because they didn’t open the mail? Suprisingly enough, this issue went all the way to the United States Supreme Court last week, in the Espinosa case.
The issue was what should happen when a creditor fails to object to a Chapter 13 plan, then later tries to re-open the bankruptcy case to complain. United Student Aid Funds, Inc. is a student lender; the debtor submitted a Chapter 13 plan that proposed to discharge his student loans with them. At the time the debtor’s attorney he filed the plan, he mailed a copy to all the creditors, as required by law.
Normally student loans can’t be discharged, at least without a specific ruling by the bankruptcy court that the loans constitute an undue hardship. But in this case the bankruptcy court didn’t make any ruling, for or against a hardship discharge.
But the creditor never objected to the plan, either, apparently not noticing until it was too late that the plan called for discharging their loans. When they did discover what was going on, several years later, they marched into court and tried to get the debtor’s discharge removed.
But the Supreme Court, in an opinion written by Justice Clarence Thomas, said they were too late, and rejected the creditor’s request — supported by your U.S. government, by the way — to use federal procedural rules to overturn final judgments. The practical effect of this ruling is that creditors are now truly bound by Chapter 13 plans they don’t object to, even when the plans might conflict with existing laws. Creditors have to stick up for themselves like anybody else, in other words, or risk losing rights if they don’t.
By Doug Beaton