Benson v. Corbin (In re Corbin), 506 B.R. 287, 296 (Bankr. W.D. Wash. 2014), Rust, 510 B.R. at 564, and De La Rosa v. Kelly (In re Kelly), 582 B.R. 905, 907 (Bankr. S.D. Tex. 2018) involve plaintiffs who were either cosigners or guarantors of student debts. In each case, the debtors defaulted on their student loan payments and the plaintiffs, as accommodation parties, were required to pay off the student loans.
Creditor argues that several courts have held that co-obligors on student loans are entitled to benefit by this exception to discharge as, "the provision of an accommodation, in order to secure for a student funds for the purpose of paying educational expenses, gives rise to an obligation on the part of the debtor to repay funds received as an educational benefit once the co-signer is required to honor its obligation to pay the debt." In re Kelly , 582 B.R. 905, 911 (Bankr. S.D. Texas 2018) (citing Benson v. Corbin , 506 B.R. 287, 297-98 (Bankr. W.D. Wash. 2014) ); see alsoBrown v. Rust , 510 B.R. 562 (Bankr. E.D. Ky. 2014).
Tex. Bus. Com. Code § 3.419(a). If a party signs an instrument as an accommodation party, i.e., in any capacity for the sole purpose of lending her credit to another party to the instrument, then the accommodation party is not liable to the party accommodated in an action for contribution, see Darden v. Harrison, 511 S.W.2d 925, 927 (Tex. 1974), and is entitled to reimbursement after paying the debt on the primary obligor's behalf, see In re Kelly, 582 B.R. 905, 913 (Bankr.S.D.Tex. 2018). The burden of proving accommodation party status is on the party asserting the status.
"In its entirety, § 523(a)(8) balances two competing policy objectives: (1) the debtor's right to a fresh start; and (2) the need to protect the financial integrity of educational loan programs and to induce lenders to lend to students who cannot qualify for loans under traditional underwriting standards." De La Rosa v Kelly (In re Kelly) 582 B.R. 905, 909 (Bankr. S.D. Tex. 2018). 4. "The debtor bears the burden of proof on each prong of the test and if even one prong is not satisfied, the debt is not dischargeable."
Determination of the dischargeability of debts is a core matter under 28 U.S.C. § 157(b)(2)(I), is fundamental to the bankruptcy system, and is a matter on which the Court can enter a final order. De La Rosa v. Kelly (In re Kelly), 582 B.R. 905, 908-09 (Bankr. S.D. Tex. 2018). Finally, King asks the Court to enjoin the Minnesota Parties from pursuing claims in state court.
Therefore, the defendants have met their initial burden as they must provide "the initial burden of proof that the debt is nondischargeable under § 523(a)(8)" in that the loan at issue is of the type described in that section. In re Kelly, 582 B.R. 905, 909 (Bankr. S.D. Tex. 2018). The loans at issue in this case are "an educational . . . loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution."
Id. at 297-98 (footnote omitted). See also De La Rosa v. Kelly (In re Kelly), 582 B.R. 905, 914 (Bankr. S.D. Tex. 2018) ("[B]ecause there is no genuine issue as to any material fact regarding the nature of the Debt incurred, its educational purpose, or the Plaintiff's status as a guarantor/co-signer/accommodation party," the debt owed to the co-signer on a student loan is nondischargeable under § 523(a)(8)(A)(ii).). In the present case, there is no dispute that the student loans held by Sallie Mae on the petition date were nondischargeable.
Creditor initiated state court collection actions under valid authority (but perhaps under the minority viewpoint) that his claim was not discharged in bankruptcy. See In re Kelly, 582 B.R. 905, 911 (Bankr. S.D. Texas 2018); see also Brown v. Rust, 510 B.R. 562 (Bankr. E.D. Ky. 2014). In those state court proceedings, Debtor did not argue that Creditor's claim was discharged in bankruptcy nor did she seek a determination as to the dischargeability of Creditor's claim.