A Bankruptcy Court judge in New York has granted a plaintiff’s motion for a preliminary injunction that will block the collection efforts on thousands of student loans that individuals allege were discharged in bankruptcy, ruling that there was no legal interest in continuing to collect on these debts.
Judge Elizabeth S. Stong, of the Bankruptcy Court for the Eastern District of New York, issued the ruling last week. The injunction affects private student loans held by the National Collegiate Student Loan Trust and serviced by Firstmark Services, as well as loans guaranteed by the Pennsylvania Higher Education Assistance Agency (PHEAA) doing business as American Education Services.
The background: The case was brought by the plaintiff, who had filed for Chapter 7 bankruptcy in 2016, asserting that her student loans, taken out for law school, did not meet the definition of a “qualified education loan” and should have been discharged in the bankruptcy proceedings. Despite this discharge, the plaintiff continued to face collection efforts from the loan servicers, leading her to file the motion for a preliminary injunction.
- The argued that these loans exceeded the cost of attendance for the university she attended and therefore should have been included in the discharge under bankruptcy law.
The ruling: Judge Stong granted the motion, finding that the plaintiff demonstrated a likelihood of success on the merits of the case. She noted that there was a “substantive claim” that the loans in question were part of the bankruptcy discharge and that continuing collection efforts were without legal basis.
- The court emphasized that the balance of hardships tipped in favor of the plaintiff, as she and others in the proposed class were suffering irreparable harm due to these ongoing collection attempts.
- The court’s decision was also informed by the Second Circuit’s ruling in Bruce v. Citigroup Inc. Judge Stong ruled that preventing further collection efforts on these loans would not harm the defendants, but would instead protect the plaintiffs’ legal rights under the bankruptcy discharge.
- The defendants have indicated they plan to appeal the decision. They maintain that the bankruptcy court exceeded its authority and that the federal appellate courts will ultimately uphold their collection efforts.
