Court of Appeals reverses discharge of law school debt

Payback may be rough, but don't expect any help from Richmond.

The 4th U.S. Circuit Court of Appeals has reversed the discharge of a bankrupt West Virginia lawyer's $90,000 in student loans.

The lawyer, Geoffrey Ekenasi, filed for bankruptcy under Chapter 13 in 1997, two years after he graduated from law school. Although bankruptcy courts do not normally discharge student loan debt, Ekenasi, a native of Nigeria and the father of nine children, won relief by claiming he would suffer undue hardship if he had to repay the loans.

The U.S. District Court in Charleston, W.Va., affirmed the bankruptcy court's order. But, at the request of the student loan companies, the appeals court reversed.

The loans, the 4th Circuit reasoned, had allowed Ekenasi, a graduate of the West Virginia University College of Law, to rise from his previous station in life as a taxi driver to earn more money as an attorney in the West Virginia's child support enforcement division.

"We must assume that Ekenasi is earning a higher monthly income as a state-employed attorney than he was earning as a taxi driver and, therefore, that he is not in a financially worse position than he was when he entered law school," Circuit Judge William B. Traxler Jr. wrote.

Ekenasi's lawyer, Charleston lawyer Andrew Nason, said he had not yet decided whether to appeal the ruling.

Nason noted the court apparently failed to consider some of the factors mentioned by the lower court in discharging Ekenasi's responsibility to pay his student loans, such as his obligations to his family and limited English skills that could preclude him from a higher-paying job in private practice.

Although the ruling was unfavorable to Ekenasi personally, Nason said one portion of the opinion, related to the dischargeability of student loan debt under Chapter 13, was more favorable to debtors in general.

In that part of the ruling, the 4th Circuit rejected the view of some other circuits that bankruptcy courts cannot discharge student loan debt before the final discharge order in a Chapter 13 case.

"[W]e do not preclude debtors from seeking a discharge determination of student loan debts prior to the completion of payments under a confirmed Chapter 13 plan," Traxler wrote. However, it may be difficult for a debtor who has taken advantage of government-guaranteed loans to prove that, in the long-term, "repayment of his student loan obligations will be an 'undue burden.'"

The reason student loan debt, as a general rule, is not dischargeable in bankruptcy is "to prevent indebted college or graduate students from filing for bankruptcy immediately upon graduation, thereby absolving themselves of the obligation to repay their student loans."

WHAT THE COURT HELD

Case: In Re: Ekenasi, US4th No. 02-1239. Opinion by Traxler J. Filed April 16, 2003. Published.

Issue: Did the district court err in affirming the bankruptcy court's discharge of nearly $90,000 in student loan debt?

Holding: Yes. The appellee, a former taxi driver from Nigeria now employed as a state lawyer, was presumably in a better financial position after he went to law school than before; therefore, discharge on the ground of undue hardship was not warranted.

Counsel: Steven Thomas for appellants; Andrew Nason for appellee.

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