Somerset mayor files for bankruptcy after dispute with family over unpaid student loan

Mayor owes money to creditors in 6 states, according to federal records

SOMERSET, Texas – Federal court records obtained by the KSAT 12 Defenders confirm that Somerset Mayor Lydia P. Hernandez filed for Chapter 7 bankruptcy this month, a decision her attorney said was made in part so she could discontinue making payments to her aunt and uncle for a 2003 unpaid student loan.

"This was precipitated by the fact that her uncle would not give up," said Hernandez's bankruptcy attorney, Jesse Blanco.

"I don't know that she will elect to reaffirm the debt. If she doesn't, it is safe to say that her aunt and uncle won't get another penny from her," said Blanco, referring to the more than $4,100 owed by Hernandez to Sandra and Philip Padilla, her aunt and uncle, who co-signed on the loan in August 2003.

Court records show that Hernandez, who is seeking another term as Somerset mayor, has been feuding with her aunt and uncle over the loan for years.

Loan records show Hernandez financed more than $5,500 to help cover expenses for her freshman year at Kerrville's Schreiner University.

The university's office of the registrar confirmed Hernandez left the school after two semesters without obtaining a degree.

The loan, however, continued to accrue interest and grew as high as $9,778.73 by the summer of 2014, according to records.

The Padillas previously said in an interview that they did not know the loan was defaulted until 2013, when they learned that it had damaged their credit.

The couple began making payments of more than $70 a month.

Hernandez, who referred all questions for this story to Blanco, said last summer that an ongoing family dispute was her reason for continuing to knowingly not pay the loan.

District court records show that Hernandez sued her aunt and uncle in September, accusing them of harassment, intimidation and bullying.

In a counterclaim filed a month later, the couple claimed that they had been forced to take over regular payments of the loan despite repeated efforts to contact their niece.

The case remains pending, according to court records.

"If it's difficult to manage your own finances to that level, it's hard to have the confidence of the people that you're representing to look out for the whole city's finances," said Dennis Scholl, Hernandez's opponent in the May 5 mayoral election.

Scholl, a retired psychologist who has lived in Somerset for 18 years, said he had around $100,000 in student loans by the time he obtained his doctoral degree.

Hernandez listed $1,600 in assets and more than $24,000 in liabilities in her bankruptcy filing. Her list of creditors included companies in six states.

Since student loans are rarely discharged in bankruptcies, Hernandez will have to continue making payments to Navient, the company holding her student loan.

Bankruptcy records show that the balance of the loan is over $7,800, which is more than $2,000 higher than the original loan amount.

In a Chapter 7 bankruptcy, the most common type of bankruptcy in the United States, a person's assets are sold and the proceeds are used to partially pay back creditors.

Blanco said that, because Texas has generous exemption laws, it is unlikely that Hernandez's assets will be sold to satisfy any claims.

About the Author:

Emmy-award winning reporter Dillon Collier joined the KSAT 12 Defenders in 2016. Dillon's investigative stories air weeknights on the Nightbeat. He provides restaurant health reports for KSAT's "Behind the Kitchen Door." Dillon is a two-time Houston Press Club Journalist of the Year and a Texas Associated Press Broadcasters Reporter of the Year.