Navient Solutions wins dismissal of involuntary bankruptcy petition

By Sarah Lizee

Olympia, Wash., Feb. 25 – Navient Solutions LLC secured the dismissal of an involuntary petition for Chapter 11 bankruptcy filed against it by three student loan borrowers, according to an order filed Thursday with the U.S. Bankruptcy Court for the Southern District of New York.

In its motion to dismiss the petition, Navient claimed the case was filed “in a bad faith attempt to gain leverage in ongoing litigation against the company and to continue a media crusade riddled with falsehoods unrelated to the enforcement or protection of petitioners’ legal and equitable rights.”

The company said the involuntary case and accompanying papers were full of “unsupported and defamatory” accusations.

“This is a clear violation of the purpose of the bankruptcy process and alone warrants dismissal of this case,” Navient had said.

As previously reported, the group of student loan borrowers claim that Navient has been evading repaying more than $20 million in overcharges to the federal government for a decade and “brazenly operates under the color of the sovereign when pursuing its purely private commercial affairs.”

The three petition creditors said they had their private student debts discharged in bankruptcy, but have been “hounded and lied to” for more than a decade to repay the discharged debt.

Navient Solutions, the servicing arm of Navient Corp., occupies a legal status in which it has possession of all Navient promissory notes, owns none of them but also has the unilateral right to repurchase any loan it wishes from any asset-backed securities which it administers.

Navient Solutions is being sued by the Consumer Financial Protection Bureau, five state attorneys’ general, dozens of major securities firms, hedge funds, consumer groups and individuals.

The official position of the federal government is that Navient misappropriated more than $22 million from the Department of Education, and that the company misappropriated $4 billion through complicated interest rate manipulations called “steering.”

“The arithmetic that follows from the official position of this government leads inexorably to the conclusion that Navient is insolvent ($87.4 billion in assets minus $85 billion in liabilities minus $4 billion in damages in CFPB lawsuit equals -$1.6 billion net worth), and owes the sovereign billions of dollars,” the group said.

The petitioning creditors said the company could have only had two options as of January. “First, Navient is planning its own Chapter 11; or second, Navient had already collateralized the borrowers they had defrauded, and thus the only way to settle would require asking the noteholders of the student loan asset backed securities for the loans back, which would surely cause their stock price to collapse,” the group said.

“If Navient’s entire business model is exposed as a Ponzi scheme, the conversation will immediately be turned away from the actual victims and towards larger issues of human greed,” the petitioning creditors said.

“In either scenario, the petitioning creditors’ pleas for relief will be lost in the noise.”

Navient is a Wilmington, Del.-based financial services provider. The case number is 21-10249.

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