National Collegiate Student Loan Trust 2007–2 v. Rand – 11/29/2016

December 13, 2016

The Arizona Court of Appeals Division One holds that a trial court abuses its discretion if it makes a decision based on a record that is devoid of competent evidence.

A couple filed for Chapter 7 bankruptcy protection.  The couple did not identify any of its debt as student loan debt.  The Chapter 7 discharge order provided that the couple’s debts for most student loans were not discharged.  A creditor then filed suit against the couple for breach of contract.  The creditor alleged that it was owed the debt remaining on a non-dischargeable student loan.  The couple answered the complaint and stated that the debt was not a student loan and had therefore been discharged in the Chapter 7 bankruptcy.

The trial court conducted a proceeding but did not swear in any witnesses, admit any exhibits, or receive any evidence.  It also did not consider whether the debt was a student loan but dismissed the creditor’s breach of contract claim based on the Chapter 7 discharge order.  The court of appeals held that the trial court abused its discretion by issuing its decision based on a record devoid of any evidence and remanded the case back to the trial court to consider evidence relevant to whether the debt was a student loan.

The court of appeals also determined that, when a student loan debtor initiates a Chapter 7 bankruptcy proceeding, creditors are not required to file a proof of claim or object to the discharge of the debt when a debtor fails to file an adversary proceeding or receive a determination of undue hardship from the bankruptcy court.

Judge Patricia A. Orozco delivered the opinion of the Court, in which Presiding Judge Andrew W. Gould and Judge Peter B. Swann joined.