(Reuters) - A New York bankruptcy judge on Thursday threw out an involuntary bankruptcy case filed against Navient Corp.'s student loan servicing unit.

At the conclusion of a remote hearing, U.S. Bankruptcy Judge Martin Glenn in Manhattan said he would dismiss the case against Navient Solutions LLC, which is represented by Kirkland & Ellis and McGuireWoods, because the claims brought by the three student loan borrowers who filed the petition are in dispute. The borrowers filed their involuntary Chapter 11 case on Feb. 8 saying they are owed a combined $45,683.64 in "overpayments" they say the servicer illegally collected.

Navient moved to dismiss the case last week, saying it was not filed for legitimate purposes under bankruptcy law and that the borrowers failed to allege that the company was not paying its debts in a timely manner. The company also accused the borrowers' attorney, who represents student loan borrowers in other litigation against Navient, of pursuing "a long-running, highly public crusade against Navient and the broader student loan servicing industry."

The borrowers' lawyer, Austin Smith of Smith Law Group, did not appear for the Thursday hearing and did not immediately respond to a request for comment. Glenn said at the outset of the hearing that Smith had informed the court on Wednesday that he was experiencing a medical emergency. Smith has previously denied the company's allegations.

The borrowers launched the involuntary proceeding looking to force Navient to refund "hundreds of thousands" of other borrowers in full, saying the company fraudulently collected payments from them. They said in their petition that Navient continued to demand payments even though their loans were discharged. They cited decisions out of the 5th and 10th U.S. Circuit Courts of Appeals allowing certain educational loans to be discharged.

Navient disputes that the borrowers' loans were discharged. Its lawyer, Chad Husnick of Kirkland, said during the hearing that the involuntary petition failed to provide any examples of valid, undisputed claims.

Navient said in a statement that it is pleased with the ruling "and looks forward to the dismissal of this frivolous petition."

Glenn, in addition to finding that the borrowers' claims are in dispute, said he was dismissing the case because there is litigation pending in other courts across the country, including one case that's on appeal to the 2nd U.S. Circuit Court of Appeals, relating to Navient's liability with respect to student loans.

"There are many issues that are going to have to be resolved before there are creditors with claims that are not disputed as to liability or amount," Glenn said. "The proper place for that litigation to proceed at this stage is in courts that are currently grappling with the issues and not jumping the queue, if you will, by filing this ill-informed involuntary petition."

The judge also rejected arguments supporting the involuntary case from litigation finance firm Public Interest Capital LLC, which said it is the transferee of one student loan borrower's claim against Navient. The firm, represented by Michael Wolk of Law Offices of Michael B. Wolk PC, said in a statement that it is disappointed in Glenn's ruling and that it believes the ruling is inconsistent with the 5th and 10th Circuit decisions and with private student loan borrowers' due process rights.

"My client is deciding how best to proceed, going forward, to vindicate and enforce the multi-billion monetary rights of private student loan borrowers nationwide, and other unsecured creditors, against Navient," Wolk said.

The case is Navient Solutions LLC, U.S. Bankruptcy Court, Southern District of New York, No. 21-10249.

The borrowers are represented by Austin Smith of Smith Law Group

For Navient: Stephen Hessler, Chad Husnick, Jennifer Levy, AnnElyse Scarlett Gains of Kirkland & Ellis and Thomas Farrell, K. Elizabeth Sieg and Joseph Florczak of McGuireWoods