The National Consumer Law Center (NCLC) has released an excellent new article at https://library.nclc.org describing the treatment of private student loans in bankruptcy. The article sets out conditions that have to be met for a private student loan to be excepted from discharge in bankruptcy. The bankruptcy code says a private student loan that is a “qualified education loan” cannot be discharged. Below is a brief description of the requirements that have to be met for a loan to be a “qualified educational loan.” Go to the NCLC article for more detailed information about each requirement.
- The school attended must have been eligible to participate in federal student financial assistance programs administered by the Department of Education.
- The student loan must have been used only to pay the amount necessary to pay tuition and fees, room and board, books, supplies, equipment and other expenses necessary to attend the school, such as transportation.
- The student borrower must have been enrolled at the school at least half time.
- The loan must have been incurred within ninety days (or a reasonable time) before or after the school period.
- The student must generally be a U.S. citizen or permanent resident.
- The student cannot be incarcerated.
- The course of study must have lead to a degree or certificate.
- The student must have received a high school diploma or the equivalent of one (GED) before attending the school.
- The borrower must be a “taxpayer.”
- The borrower must be either the student, the student’s spouse or someone who claims the student as a dependent.
If the private student lender can’t prove that all ten of the conditions are met then the loan should be dischargeable. One of the problems with obtaining discharge of private student loans, however, is that it generally needs to be done through litigation beyond just filing bankruptcy, either through separate litigation during the bankruptcy or litigation to enforce the discharge injunction after the bankruptcy is completed. That litigation can be costly but if you have a private student loan that might not fit the above conditions and are able to pay for the necessary litigation contact us. You can also find more information at http://thompsonlawoffice.net/797/private-student-loans-discharged-in-bankruptcy/.