Private Student Loan Discharge in Bankruptcy

BANKRUPTCY ATTORNEY IN HACKENSACK 07601 - 201-646-3333

United States Court of Appeals

for the Second Circuit

AUGUST TERM 2020

No. 20-1981

HILAL K. HOMAIDAN,

Plaintiff-Appellee,

v.

SALLIE MAE, INC., NAVIENT SOLUTIONS, LLC, NAVIENT CREDIT FINANCE

CORPORATION,

Defendants-Appellants.1

ARGUED: MAY 19, 2021

DECIDED: JULY 15, 2021

Before: JACOBS, CHIN, NARDINI, Circuit Judges.

The Clerk of Court is directed to amend the caption as set forth above.

Reeham Youssef was added as a plaintiff in the proceeding below and appellants named her as an appellee here. However, Youssef was not a party to this case when the bankruptcy court entered the order on appeal. Therefore, she is not a proper party to this appeal and is removed from the caption.

In the United States Bankruptcy Court for the Eastern District of New York (Stong, B.J.), the borrower argued that a student loan was discharged in bankruptcy. The bankruptcy court denied the lender’s motion to dismiss after concluding that 11 U.S.C. § 523(a)(8)(A)(ii)—which excepts from discharge “an obligation to repay funds received as an educational benefit, scholarship, or stipend”—does not cover private student loans. We AFFIRM.

____________________

GEORGE F. CARPINELLO, Boies Schiller Flexner LLP,

Albany, NY (Adam R. Shaw, Robert C. Tietjen, Jenna C.

Smith, on the brief), for Plaintiff-Appellee.

Austin C. Smith, Smith Law Group, New York, NY

(on the brief), for Plaintiff-Appellee.

Lynn E. Swanson, Peter Freiberg, Jones, Swanson,

Huddell & Garrison, L.L.C., New Orleans, LA

(on the brief), for Plaintiff-Appellee.

Jason W. Burge, Fishman Haygood L.L.P., New Orleans,

LA (on the brief), for Plaintiff-Appellee.

THOMAS M. FARRELL, McGuire Woods LLP, Houston,

TX (K. Elizabeth Sieg, McGuire Woods LLP, Richmond,

VA, on the brief), for Defendants-Appellants.

DENNIS JACOBS, Circuit Judge:

The Bankruptcy Code immunizes certain liabilities from discharge, including much educational debt. See 11 U.S.C. § 523(a)(8). The question in this case is whether the private educational loans that Plaintiff-Appellee Hilal K. Homaidan took out from Defendant-Appellants Sallie Mae Inc., Navient Solutions, LLC, and Navient Credit Finance Corporation (collectively, “Navient”) were dischargeable.

Homaidan received the loans (the “Navient loans”), graduated from  Emerson College, and later filed for Chapter 7 bankruptcy. The bankruptcy court’s 2009 discharge order was ambiguous as to whether the Navient loans were discharged. Navient pursued repayment after the discharge order was issued, and Homaidan complied. After paying off the loans in full, Homaidan reopened the bankruptcy case and commenced this adversary proceeding against Navient seeking, among other things, actual damages for Navient’s alleged violation of the discharge order. The United States Bankruptcy Court for the Eastern District of New York (Stong, B.J.) determined that the Navient loans were not excepted from discharge under 11 U.S.C. § 523(a)(8)(A)(ii) and therefore denied Navient’s motion to dismiss. See Homaidan v. SLM Corp. (In re Homaidan), 596 B.R. 86, 107 (Bankr. E.D.N.Y. 2019).

Navient maintains that § 523(a)(8)(A)(ii) prevented the loans from being discharged in Homaidan’s bankruptcy. That provision excepts from discharge “obligation[s] to repay funds received as an educational benefit, scholarship, or stipend.” 11 U.S.C. § 523(a)(8)(A)(ii). Under Navient’s reading of that provision, the term “educational benefit” would encompass virtually all private student loans. But that reading cannot be reconciled with the text and structure of § 523(a)(8), both of which confirm that § 523(a)(8)(A)(ii) excepts from discharge a far narrower category of debt.

Accordingly, we AFFIRM the bankruptcy court’s denial of Navient’s

motion to dismiss.

I

Homaidan attended Emerson College from 2003-2007 and took out several loans to finance his education there. Among them were two direct-to-consumer Tuition Answer Loans, totaling $12,567, from Sallie Mae Inc., a corporation to which Navient is the successor. Although the loans helped underwrite Homaidan’s college education, they were not made through Emerson’s financial aid office, nor—Homaidan alleges—were they made solely to cover Emerson’s cost of attendance. They went straight to Homaidan’s bank account, and the loan proceeds exceeded the cost of Emerson’s tuition.

Soon after graduating, Homaidan filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of New York. The petition listed the Navient loans as liabilities. Homaidan eventually obtained a discharge order from the bankruptcy court, but the order did not specify which debts were discharged.