Wednesday, May 22, 2013

New Ninth Circuit Consumer Law Opinion! - Hedlund v Educational Resources Inst.

Hedlund v Educational Resources Inst. (9th Cir. May 22, 2013)

Michael Hedlund graduated law school and later filed bankruptcy. The bankruptcy court determined Mr. Hedlund acted in good faith and discharged a portion of his student loans. On appeal, the district court reversed, finding that Mr. Hedlund failed to act in good faith.

The Ninth Circuit Court of Appeals reversed because the bankruptcy court's determination was not clearly erroneous.

In 1998, the Ninth Circuit adopted a three-prong Brunner test to determine student loan dischargeability under 11 U.S.C. Sec. 523(a)(8). To satisfy the third Brunner prong, a debtor must prove he has made good faith efforts to repay his loans.

The Appeals Court reasoned that the district court incorrectly used the de novo standard instead of the "clearly erroneous" standard in reviewing the bankruptcy court's good faith determination.

Read the full opinion for complete analysis: http://cdn.ca9.uscourts.gov/datastore/opinions/2013/05/22/12-35258%20web%20-%20corrected.pdf

Commentary: Kudos to Yonatan Braude and Eugene's Natalie Scott for obtaining this pro-underdog result! As a lawyer with defaulted student loans, it's refreshing to see the Court of Appeals denounce some of the seemingly anti-consumer sentiment contained in the district court's reasoning.

Consumer law junkies will note that the Hedlund opinion dicta reinforces the recent Ninth Circuit B.A.P. holding in Roth that participation in an income-based repayment plan is not required to satisfy the Brunner test.

Read the full April 16, 2013 B.A.P. opinion mentioned above: http://cdn.ca9.uscourts.gov/datastore/bap/2013/04/16/RothV%20ECMC%20opinion-FINAL%20AZ-11-1233.pdf