Expert: Mark J. Markus- California Bankruptcy Attorney - 10/19/2011

Question
In the fall and winter of 2001 i had enrolled in school but did not attend due to mental health issues.  The school had received payment for my tuition, but had to reimburse money back to the loan company for retroactive ineligibility because I had failed the two terms.  I therefore incurred a debt with the school for 1397.00 for the money they had to reimburse.  I filed pro per se a no asset chapter 7 bk in 2007 and it was discharged in 2008 in Los Angeles county (I don't know if it matters but I now live in Oregon). I had listed all of my debts with the exception of this 1397, as I was unaware of the debt.  As of today I have never received any notice for the debt, and it has never appeared on any of my credit reports, so I had no idea that the debt needed to be included.  I tried last week to get a copy of my transcript and they are refusing until I pay the 1397.00.  My question is was this debt included in the bk even though it was not listed?  The financial aid office is saying that this counts as a loan for education and is not dischargeable in the bankruptcy.  There was never any promissory notes for the debt.  And in essence it was a reimbursement for unpaid tuition for the school.  I am very confused over how to proceed.  Is there hope to have this discharged?  Is there any legal presidencies in this case that I can give to the school? They said that eventhough it no longer carries any of the terms of the original loan, it is still a loan.  How can that be with not agreement on my end that this is a loan?

Answer
Hi Jennifer,

First of all, the failure to list the debt in your bankruptcy case has no impact on the present issue.  If it was a no-asset case and the debt was dischargeable, it was discharged.  If it wasn't dischargeable, then it wasn't.   And that is the million dollar question.  I agree with your confusion.  There seem to be some facts missing here, however.  You state that the school received payment for your tuition but had to reimburse the money back to "the loan company".   What loan company is that?  Did you have a student loan?  If so, and the money was (due to you failing two terms) considered an "overpayment" for educational benefits, then the reimbursement thereof could very well be nondischargeable under 523(a)(8).

This is something that would need to be researched, but the only way to determine for sure whether or not it was discharged is to file a Complaint with the bankruptcy court to make that determination (or to be defensive and bring an action in the bankruptcy court taking the position that it is a violation of your discharge injunction for them to withhold your transcript).  

As a matter of reality, either of the above is going to cost you well over $1,397 to litigate (and more likely in the range of $5,000+)

Mark J. Markus, Attorney at Law
Handling exclusively bankruptcy law cases in California since 1991.
http://www.bklaw.com/
bankruptcy blog: http://bklaw.com/bankruptcy-blog/
Follow Me on Twitter:  @bklawr