A recent ruling by the U.S. Supreme Court could change how some bankruptcy filings are handled - as well as how lenders may follow up in cases where there is a dispute over provisions for loan repayment. The case revolved around Francisco J. Espinosa, who had borrowed just under $14,000 in 1988 and 1989 to attend trade school.

By 1993, Espinosa owed about $17,000 in student loans, interest and penalties. At the time, he was making a mere $6.70 per hour and filed for Chapter 13 bankruptcy to restructure his debt. His court-approved payment plan included stipulations to repay the principal amount, but did not require him to pay off any of the interest or penalties he had accrued.

Along the way, both Espinosa and the judge in his bankruptcy case made procedural errors.

In a Chapter 13 bankruptcy, the judge overseeing a case can discharge student loans only if he or she finds that requiring repayment would impose an "undue hardship."

In Espinosa's case, the judge did not require repayment of some $4,000 in interest and penalties, yet recorded no opinion as to whether or not such a requirement would impose undue hardship. In addition, Espinosa failed to notify his lender of the bankruptcy in the way required under the law. Still, the lender was notified multiple times by the court in regards to the structure of Espinosa's repayment plan.

The lender made no complaint and, when Espinosa finished repaying the debt in 1997, the court marked his case as resolved.

Then, several years later, Espinosa's lender reappeared, demanding payment for the neglected interest and penalty fees. The case went all the way to the Supreme Court and, on Tuesday, the justices handed down a unanimous decision.

In its ruling, the Supreme Court refused to interfere with the bankruptcy plan, ruling that a lender who fails to object to a court-approved repayment plan - and does not file an appeal in time - cannot come back later on to collect unpaid debt.

One of the main takeaways in this case is the fact that lenders will not be able to seek repayment whenever they feel like it. This could apply to any bankruptcy case, whether student loan or car loan. The second implication is that judges must do a better, and more thorough, job of evaluating student loan restructuring or dissolution during a bankruptcy filing and not dismiss debt unless undue hardship is a factor.

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