Wells Fargo in trouble?

Wells Fargo Bank has been faced with penalties due to ignoring student loan debt in debtor Ryan’s bankruptcy. Ryan filed for bankruptcy in 2007 and after his discharge; Wells Fargo commenced litigation and collection actively on the debt. In 2008, Ryan was making monthly payments of $150 on the loan that would be made for the next seven years. In Bankruptcy court, Ryan reopened his case and sued that the debt had been discharged. Educational Financial Services of Wells Fargo made an argument that the loan was not discharged in 2007 bankruptcy.

Ryan argued “that the loans from Wells Fargo were discharged by operation of law on November 29, 2007, because the loans were NOT a student debt protected by any subsection of Section 523(a)(8)” (Section 523(a)(8): Undue Hardship). Because the Judge ruled that even “though the debtor had paid the debt through state court judgment, he wasn’t being prevented from reopening the case and filing adversary proceeding to rule on discharge of non-protected student loan debt.”

Wells Fargo argues that his loans should not be discharged because “he obtained funds from Wells Fargo and the government in excess of the cost of attendance.” Wells Fargo wants to deny any bankruptcy violation because if they are found to have pursued the alleged discharged private loans debt would be found liable for would be found liable. Given the situation, Wells Fargo knew or should have known that the loans were discharged in Ryan’s bankruptcy.

Overall, it is important to anyone who is including student loans in bankruptcy to do an adversary proceeding to get a ruling on the dischargeabilty of the loans which often gets over looked. This case has yet to come to a final ruling and we will have the end result soon.