You may feel defeated and as though a bankruptcy filing is not quite worth it if your primary financial cripple is your outstanding student loan debts. This is because this loan type is notorious for being inexcusable in bankruptcy proceedings. However, in recent years, the Department of Justice (DOJ) and Department of Education (ED) have provided updated guidance on this, making this possibility more accessible to prospective debtors. Without further introduction, please follow along to find out whether your student loans can ever be discharged in a bankruptcy case and how a proficient Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C., can help you explore your relief options.
Why are student loans treated differently from other debts in bankruptcy?
As you may have already learned in your research, student loan debts are more difficult to discharge in consumer bankruptcy than credit card debts, medical debts, and personal loan debts. In short, this is because the United States Congress has imposed heightened protections to stop borrowers from taking out educational loans and quickly erasing them through bankruptcy. This ultimately preserves the stability of the federal government and other guaranteed lenders and the legitimacy of federal student-aid programs as a whole.
Of note, private student loans typically receive the same treatment, as they still fall under the statutory definitions that make an automatic bankruptcy discharge quite impossible. With all that being said, if you still wish to fight for the elimination of your student loan debts, you may have to initiate a separate lawsuit within your consumer bankruptcy case. This is otherwise referred to as an adversary proceeding, where you must provide sufficient evidence of your inability to pay off your student loans due to qualifiable undue hardships.
When might a student loan be discharged in bankruptcy?
Of note, instead of claiming an undue hardship in an adversary proceeding, you may argue that unique circumstances make your outstanding student loan debts fall outside of what is considered a “qualified educational loan.” Here, you may cite the Internal Revenue Code and the United States Bankruptcy Code. Below are more specific examples of what is not a qualified educational loan:
- Your loan amount exceeded your school’s cost of attendance.
- Your loan was paid directly to you rather than to your school.
- Your loan was issued for your living expenses at a non-eligible institution.
- Your loan was used for an unaccredited program, a non-degree course, or a continuing-education program.
- Your loan was from a private lender for an examination-study program or vocational training program.
Ultimately, if the New York State bankruptcy court believes that your student loan meets this specific statutory definition, it may be eliminated from your immediate financial responsibility along with your other eligible dischargeable debts. In conclusion, we suggest you employ the services of a talented Rockland County bankruptcy attorney from The Law Offices of Allen A. Kolber, Esq., P.C., if you want the best possible chances at a positive legal outcome. We look forward to serving you.
