Case info: In re Shuey, 2018 WL 300427 (Bankr. N.D. Ill. Jan. 4, 2018)
Case opinion: Download
TL;DR: A cosigner does not violate a Debtor’s discharge injunction when he tries and collect for payment he makes on her student loan after she got a discharge.
Debtor’s motion to reopen: GRANTED; Debtor’s motion for sanctions DENIED.
- ICYMI: Student loans in bankruptcy January 2018 [Ayers]
- Everything you need to know about student loans in bankruptcy January 2018
You still owe your cosigner for payments he makes on your private student loan after you get a discharge
Back in 2010, Kristine Shuey née Lathrop filed a chapter 7 bankruptcy. In her schedules, she listed money she owed her former father-in-law, Craig, for payments he made as a cosigner on her private student loans.
After getting a discharge, Kristine made no monthly payments on the loans but Craig did.
Later, Craig sued Kristine (rightfully so) to try and get his money back. He won. And with the judgment in hand, he began garnishing her wages.
Kristine was like:
So she moved to reopen her bankruptcy so she can move for sanctions, arguing Craig violated her discharge by garnishing her wages.
What the court said
The court granted her motion to reopen but it denied her motion for sanctions.
The reason for its denial is pretty straight-forward.
When you file bankruptcy, you have to list all debts you owe at that time.1 Those debts, generally speaking, are dischargeable.
But what about a debt that only becomes due after you get a discharge?
Of course, the answer is that the debt wasn’t a part of your bankruptcy. And if it wasn’t part of your bankruptcy, you still owe it.
Now the wrinkle with this case is the debt Kristine owed Craig for arose from his repayment of a debt that existed before she filed bankruptcy. Ordinarily, Kristine would no longer owe anything on that type of debt (think of a mortgage, car note, credit card, etc.). Absent her reaffirming a debt,
But student loans are different. Unlike a debt for a mortgage, student loan debt is dischargeable only if you show that repaying it causes you an undue hardship. Because of that, Kristine’s personal liability on the loan remained after she got her discharge. And because it remained, each time Craig paid on the student loan, Kristine incurred a new debt her discharge didn’t cover.
Nada. There’s nothing new, nothing exciting here. Kristine, if she wants to get out of repaying Craig, should file a new bankruptcy. Problem solved.
11 U.S.C. § 727(b)↩