The Ninth Circuit Court of Appeals today released an opinion in ESPINOSA v. UNITED STUDENT FUNDS, No. 06-16421, a bankruptcy appeal. The panel consisted of Alex Kozinski, Chief Judge, A. Wallace Tashima and N. Randy Smith, Circuit Judges.
Espinosa obtained $13,250.00 in student loans from United Student Aid Funds, Inc. (Funds). He later filed a Chapter 13 bankruptcy petition and plan. The plan provided that he repay the $13,250.00 principal, and that accrued capitalized interest, penalties, and fees be discharged. The clerk of the bankruptcy court mailed a notice of commencement and a copy of the proposed plan to Funds, which gave Funds the usual notice of the date and time of the plan confirmation hearing and the deadline for filing objections to the plan. Funds then filed a proof of claim for $17,832.15, which presumably included unpaid accrued capitalized interest, penalties, and fees. But Funds filed no objections to the plan, and as there were no other creditors, the bankruptcy court confirmed the plan as proposed. Espinosa subsequently paid Funds $13,250.00 over the course of four years, at which point the plan was completed and the bankruptcy court issued a discharge order, filed May 30, 1997. Curiously, the discharge order provided that Espinosa was “discharged from all debts provided for by the plan . . . except any debt . . . for a student loan,” which contradicted the terms of the plan and pretty much rendered the whole exercise pointless from Espinosa’s point of view. Curiouser still, Espinosa did not seek reconsideration of the discharge order, nor did he appeal. Three years after the discharge order was filed, Funds began “offsetting” or “intercept[ing]” Espinosa’s income tax refunds to satisfy the unpaid portion of the student loan. (The parties don’t explain what they mean by “offsetting” and “intercept[ing],” but we assume they mean that Funds somehow . . .