There are some debts that bankruptcy does not affect. You can file bankruptcy to help relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.
But some debts are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid
The prior two categories of debt are pretty black and white. Most of these debts do not discharge. Period. Taxes can discharge only under very specific criteria.
The discharge of student loans has a narrow strip of grey in it. It is one of the few debts listed as otherwise non-dischargeable in which the court has some discretion. The judge is allowed to judge…
Section 523(a) of the bankruptcy code (Title 11) lists all of the debts that are not discharged in bankruptcy. In this book I do not want to get bogged down in quoting and citing the code with all its legalese. I want to make the list of non-dischargeable debt clear.
But in this case, since the “rule” about when a student loan is dischargeable is so grey … so ephemeral … I want you to read it.
523(a)(8): unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents … (a bankruptcy discharge does NOT discharge) … an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or … an obligation to repay funds received as an educational benegit, scholarship, or stipend; or … any other educational loan that is a qualified education loan … incurred by a debtor who is an individual …
Over the years the pendulum swings to and fro as to what is included in a “student loan”. The loan itself? Of course. But what about tuition (fees and costs for admission and signing up for classes)? Once upon a time those debts were non-dischargeable, too. As of now the pendulum swung the other way – those kinds of debt ARE dischargeable.
As of this writing the pendulum has swung so far as to say a college cannot refuse transcript requests if you file on tuition. At one point a school could refuse transcripts.
Once upon a time the tab you had at the school book store was non-dischargeable. Or at the least the school could refuse your transcript request until you paid for that stick of gum.
Today, though, only the loan itself is non-dischargeable.
The phrase on which most debtors rely on discharging student loans is “… unless … (the survival – non-dischargeability – of the student loan) would cause an undue hardship…”
What is an undue hardship? Most courts look at a person’s past, present and future to determine that. Have they tried their best to pay the loan? Does a review of their current finances allow for any room for a payment on the loan? And what does their future income and expenses look like?
Those are the criteria, usually. Some courts are stricter than others on this. Your local bankruptcy attorney will know if discharging student loans in your district is only just difficult or very very difficult. It’s not easy and it’s not meant to be easy. I am avoiding editorializing here – ask me personally – but I think it is fair to say the laws make it quite hard to discharge your student loans.
What do I mean?
If a Debtor is wearing a nice suit during the hearing, will that hurt his chances? A gold ring? If someone can afford a house payment does that mean they can afford their student loan?
That sort of thing.
A good local bankruptcy attorney will have the experience and knowledge of your district to advise you of the possibilities of student loan discharging in your district.
What about Chapter 13s? Even I have to admit that discharging student loans in a Chapter 13 is close to impossible. If you can make a monthly payment of $100.00 (or more) for three-to-five years you can continue that payment on a student loan after discharge.
I’ll discuss more debts that are non-dischargeable next time.
Copyright 2016 Michael Curry
About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.
He is also the author of books on finance and bankruptcy available on Kindle through Amazon!
Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!
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