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Discharging student loans


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For cases filed after October 7, 1998, Student Loans are only dischargeable if: 1. You can prove that having to repay it would impose an "undue hardship" on you (as defined below), OR, For cases filed PRIOR TO October 17, 2005, 2. If the PROGRAM under which your student loan is issued, insured, administered is a FOR-profit, PRIVATE (non-government) entity, it may be dischargeable. (However, if the program itself, such as LAL, GSL, etc. receives nonprofit funding by participation of nonprofit entities, the loan is not dischargeable in bankruptcy).

To obtain a discharge based on undue hardship you must prove all of the following:

1. that you cannot maintain, based on current income and expenses, a 'minimal' standard of living for yourself and your dependents if forced to repay the loans;

2. that additional circumstances exist indicating that this state of financial affairs is likely to persist for a significant portion of the repayment period of the student loans; and,

3. that you made good faith effort to repay the loans, for example, by past payments for several years, etc. Making payments is not always required if you didn't ever have the money to pay the loans. Forebearances may be sufficient.

NEW: The Ninth Circuit recently ruled (in April 2003) that courts have the authority to issue partial discharges of student loans, in cases where the debtor shows the ability to repay some, but not all, of the loans. This is a huge improvement in the ability to possibly discharge some of these debts, because before the rule was if you could afford to repay any of the loan, you had to repay it all.

HEAL Loans are subject to a higher standard of scrutiny and are much harder to discharge.

Click here to see how the 9th Circuit court has interpreted the above requirements in a couple of different recent cases.

**Please note that these are merely representative cases and are not necessarily binding on your circumstances.**

To see a case explaining the non-profit/for-profit distinction for dischargability of privately issued student loans, see In re Pilcher,149 B.R. 595 (9th Cir. BAP 1993). Please note that this option for discharge disappears after October 17, 2005 when the new laws go into effect.

For other alternatives to dealing with Student Loans, including income contingent repayment plans, and non-bankruptcy methods of canceling the debt, see http://www.ed.gov/offices/OSFAP/DCS/loan.cancellation.discharge.html

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That's very good info. However keep in mind that is the "Wacky 9th" so what applies in California in that federal circuit may not fly in the other US Circuit courts...

Highlights of the new Bankruptcy Reform Act which Effect Consumer Bankruptcy

The “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”, which can be referred to as the Bankruptcy Reform Act, or just the “Act”, is the first major revision of the bankruptcy laws since 1978. The Supreme Court summarized the intent of modern bankruptcy law, including our current laws, when it said that they are intended to give debtors a “fresh start”, “a new opportunity in life, unhampered by the pressure and discouragement of pre-existing debt.” The new bankruptcy law will not give consumers a "fresh start" and in many cases will force filers to continue to make payments to debtors under Chapter 13 repayment plans for many years after first filing.

There are major changes in the new Bankruptcy Reform Act which will affect consumer debtors in fundamental ways.

Student Loans – unless the Debtor proves repayment would create an undue hardship on the debtor and the debtor's dependents, which is very difficult to prove absent a severe disability, all student loans are now non-dischargeable, even where the lender is a non-governmental, commercial, entity.

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Ok, I think all here already know that student loans, even private ones, are virtually impossible to have discharged.

Even before the new law, even private loans would be considered non-dischargeable and that is because the language of the law said that if the loan was 'primarily for educational benefit', it was non-dischargable. The burden then became to prove that a loan was or was not 'primarily for educational benefit' - and isn't that what a student loan is ??

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I am very grateful that I was able to get my discharged due to disability. It was discharged by the Dept of Education, not in Bankruptcy. It is a 3 year process and I finally got all the necessary documentation and it was discharged on 10/05. It was a long process and during it they lost my info and I had to start over. I am just so grateful it is over.


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