Led by partner Vincent Howard, our San Bernardino consumer bankruptcy attorneys frequently represent people who are seeking a bankruptcy in part because they have oppressive student loan debt. This is a major issue for bankruptcy filers and younger people, who have been denied the opportunity to discharge this debt even when it's private -- where the interest rates are high -- by the 2005 changes to the bankruptcy laws. Against that backdrop, the Sixth U.S. Circuit Court of Appeals decided in In re Gourlay that Sallie Mae, the student loan organization, is not permitted to set aside a default judgment obtained by filer Kristin Gourlay after Sallie Mae failed to respond to adversary proceeding seeking to find the debt dischargeable. The bankruptcy court was within its rights to find that the failure was not excusable neglect, the court said; service was proper and the appropriate person simply failed to respond.
After Gourlay, of Kentucky, filed for Chapter 7 bankruptcy, she filed the adversary proceeding seeking to determine the dischargeability of her student loans owed to Sallie Mae. When she filed, she owed Sallie Mae about $25,500. Her bankruptcy attorney sent Sallie Mae a timely summons by certified mail, and the return card was signed by someone believed to be a part time employee at the company's Virginia headquarters. The deadline for a response came and went, and Gourlay filed for a default judgment about a week later. This was rejected for improper service, so Gourlay served the summons again. When there was still no response, the bankruptcy court granted her second motion for default judgment. Eighteen days after that was final, Sallie Mae moved to set it aside for excusable neglect. The court ultimately rejected this, finding that internal breakdowns are not excusable neglect, and Sallie Mae appealed.
On appeal, Sallie Mae argued that its failure to respond was not culpable; that Gourlay's complaint was insufficient in any case; that she failed to follow local notice rules; and that service was not proper. The Sixth U.S. Circuit Court of Appeals rejected all of these arguments. On the sufficiency of Gourlay's complaint, the court found that Sallie Mae can no longer make this argument, having waited past the deadline for appeal of a purported legal error. On the excusable neglect issue, the Sixth simply disagreed. Sallie Mae said the office that the summons was mailed to was in the process of moving, with only one employee present; it argued that the resulting delays and chaos amount to excusable neglect However, there was no evidence that the organization took steps to safeguard important mail, the court noted, and the lost notice appeared to be the result of its own decisions. On the notice issue, the court said, Sallie Mae was entitled to no further notice in any case because of its non-response. Finally, the Sixth found that service was not improper just because the executive named did not work at that office; Gourlay had an obligation to serve the principal office, and she did.
Vincent Howard and our Irvine personal bankruptcy lawyers are pleased to see a win in a case involving a defendant that so clearly did not follow the rules. In general, this kind of default judgment is more often won against individual defendants, who miss notices because they don't have the resources of a large organization like Sallie Mae. (In rare cases -- though less rare in debt collection lawsuits -- the notice is actually served incorrectly.) This ruling helps establish that the same rules apply even when the losing party is powerful and can afford many lawyers. It's also, of course, a win for Gourlay, who may be able to clear the encumbrance of her student loans because of this mistake. Vincent Howard and our Carlsbad individual bankruptcy attorneys routinely work with people who are suffering from heavy student loan debts and have limited options for clearing it.
Based in Orange County, Howard Law, P.C., represents clients across California who are ready to explore bankruptcy as an option for clearing debt and making a fresh start. To speak to us about your case and your options, send us a message through our website or call 1-800-872-5925.