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Bankruptcy Law/Student Loan Debt

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Expert: - 7/9/2007


Question
QUESTION: I had a bankruptcy discharged in 2002. I was looking through my bankruptcy papers the other day and I noticed that some of the debt my lawyer include was student loans. Are student loans discharable in bankruptcies done before the 2005 changes?

Thank you,

Shawn

ANSWER: Student loans were generally not dischargeable if the debt was owed for a loan program made or guarantied by a governmental entity or a non profit institution.

The major exception would be if you initiate a proceeding in the bankruptcy court for a "hardship discharge." Most courts will not grant a hardship discharge unless there is compelling evidence of a serious ongoing disability coupled with an ongoing inability to pay the debt while maintaining a subsistence standard of living.

Your lawyer was correct to list the debt, because your bankruptcy schedules are intended to be a financial statement of all your liabilities, not just the ones you expect to discharge.

If the loan was owed to a private "for profit lender" lender and was NOT a loan program made or guarantied by a governmental entity or a non profit institution, then the loan was probably discharged.

---------- FOLLOW-UP ----------

QUESTION: I guess that brings me to the next silly question. What would be considered a loan "guarantied by a governmental entity"? My loans are through a company called NelNet.

Thank you.

Answer
A good example would be where you are required to make payments to a bank, but the loan has been guarantied (like having a cosigner)by a Federal or state student loan program. In such an instance, the government pays off the loan if the student defaults, (and then the government goes after the borrower to collect). Your original loan promissory note will probably disclose that.

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Los Angeles Bankruptcy Lawyer Leon D. Bayer

Expertise

Leon Bayer has successfully represented clients in bankruptcy for over 30 years. He is frequently called upon by the media, the California Bar and other associations to provide insight and help educate attorneys on bankruptcy issues. If you or other readers want to keep up with my blog postings about life in and out of bankruptcy, you can follow my blog at http://www.bankruptcyblogger.org/ and my personal web site at http://www.debt-relief-bankruptcy.com and A Human Guide to Bankruptcy at http://www.thebankruptcyguide.net/ Leon also writes about bankruptcy law for Nolo, see http://www.nolo.com/law-authors/leon-bayer.html and his "Ask Leon" bankruptcy law blog column at http://blog.nolo.com/bankruptcy/

Experience

Leon is a Certified Specialist in Bankruptcy Law by the State Bar of California, and has been a practicing bankruptcy lawyer in Los Angeles, California for 33 years.

Organizations
National Association of Consumer Bankruptcy Lawyers, California Bar Association, Los Angeles County Bar Association.

Publications
Author, ?The Essentials Of Chapter 13,? Daily Journal Report, December 18, 1987.
Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993.
CEB Consultant, CEB-Personal and Small Business Bankruptcy Practice in California, 2003.


Education/Credentials
B.A., J.D.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory
Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

MR. BAYER SAYS: The big banks and credit card companys have been working overtime for many years to undermine the Consitutional right of the American people to be able to claim bankruptcy protection. In 2005 the banking lobby successfully convinced Congress and the President to make the laws and proceedures more complicated, hopeing that it will stymie legitimate people from filing bankruptcy. They succeeded in gaining these complex new legal proceedures by greasing the legislative system with hundreds of millions of dollars in "campaign contributions." The good news for the American people is that while the new laws have made the proceedures needlessly complex to the point where inexperienced people can't help but trip over the maze of new rules and regulations, the process is still doable, especially with a lawyer who is well trained and experienced in this specialty.

Past/Present Clients
I have probably handled something on the order of about 15,000 bankruptcy cases thropughout my career.

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