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Carrion v. U.S. Department of Education summary

 

Carrion v. U.S. Department of Education published May 31, 2019

 

Snippet: H remained liable for a debt he incurred during marriage even though MSA assigned half of it to W; H's remedy was to pay the debt and seek reimbursement from W for her half.

 

The U.S. Bankruptcy Appellate Panel of the Ninth Circuit has ruled that a debtor remained responsible for the entire amount of an educational loan and that it was nondischargeable despite the existence of a marital settlement agreement (MSA) that assigned half the debt to him and the other half to his ex-wife.

 

Bankruptcy Court’s Decision

 

In Carrion v. U.S. Department of Education, Carlos Carrion contended a loan in favor of his son was executed without his authorization and that he was a “victim of identity theft and fraud.”  The loan was to cover expenses for the education of Mr. Carrion and his spouse’s son.  The loan was executed in August 2010 with Carrion’s typed, electronic signature. The couple filed for divorce as well as joint Chapter 7 bankruptcy in June 2011. The bankruptcy petition indicated that the loan debt was allocated to Mr. Carrion. A 2013 MSA, on the other hand, provided that each spouse was responsible for half of the loan debt.

 

The loan servicer rejected Mr. Carrion’s argument that the loan was executed by fraud and later the U.S. Bankruptcy Court for the Southern District of California found the same claim “unpersuasive,” particularly in light of the existing MSA that allocated the debt equally between him and his ex-wife. The court ruled that even if it the loan had been obtained without his consent, Mr. Carrion ratified the loan by signing the MSA.

 

The court went on to hold, however, that under Section 916 of the California Family Code, the U.S. Department of Education was bound by the terms of the MSA signed by Mr. Carrion and his ex-wife, which relieved Mr. Carrion of liability for half of the loan.

 

Decision on Appeal

 

The appellate panel reversed the lower court’s decision based on the plain language of Section 916, subdivision (a)(1), which states that “a debtor spouse remains personally liable for his or her debts incurred during marriage, regardless of the terms of any marital agreement.” The court characterized the text as “hard to read” but “not ambiguous” and further noted that the proper procedure regarding the allocation of debt “is to pay the debt and seek reimbursement from the spouse assigned the debt.”

 

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