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Make the creditor prove the debt is a non-dischargeable student loan

All too often bankruptcy lawyers stipulate to the most difficult aspect of an adversary proceeding with a private lender: proving that the debt is a presumptively non-dischargeable student loan.  This not only saves the creditor time and money, it also results in errors.  Don’t make this mistake.

In an adversary proceeding to determine the dischargeability of a debt, the creditor bears the initial burden of proof.[1]  Even where the debtor files the adversary proceeding, the initial burden is on the creditor.[2]  You do not have to prove “undue hardship” until the creditor first proves the debt is presumptively non-dischargeable under section 523(a)(8).  Creditors must prove this by a preponderance of the evidence.

This is not an easy thing to do.  For example, in the case of a private student loan, a creditor must prove that the debtor was an “eligible student” under 26 U.S.C. § 25A(b)(3) at the time the debt was incurred.  What are the requirements to be an “eligible student”?  At the time the loan was originated, the debtor must have been enrolled in an accredited program leading to a certificate or recognized degree on at least a half-time basis.  The debtor must have also been a “taxpayer” in the year he or she incurred the debt.  That’s a lot to prove and the documents required to prove it are not easily attainable.[3]

True, this may result in more discovery, but it will also ensure that the debt you are trying to prove would impose an “undue hardship” is actually a non-dischargeable student loan.   Further, if the creditor recognizes early on that your case is going to be a lot more work than it’s worth, this may encourage more favorable settlement terms.

Forcing your adversary to meet his legal burden is not a harassing litigation tactic.  The creditor was supposed to perform this due diligence before they originated the loan.  They skipped it then.  Don’t let them skip it now.

[1] See In re Bronsdon, 435 B.R. 791, 796 (B.A.P. 1st Cir. 2010) (“The creditor bears the initial burden of establishing that the debt is of the type excepted from discharge under § 523(a)(8). Once the showing is made, the burden shifts to the debtor to prove that excepting the student loan debt from discharge will cause the debtor and her dependents ‘undue hardship.’”).

[2]  See In re Dudley, 502 B.R. 259 (Bank. W.D. Va 2013).

[3] This is only one category of things the credit will have to prove. See 26 U.S.C. 221(d) for more information on the “qualified education loan” requirements.