- Free Consultation: (202) 448-5136 Tap Here To Call Us
Non-Qualified Student Loans Can Be Discharged in Bankruptcy
You can discharge your non-qualified student loans in bankruptcy. Most student loans are “qualified” student loans and cannot be discharged in bankruptcy. But not so for non-qualified student loans.
What are non-qualified student loans?
Student loans are generally excepted from the bankruptcy discharge in 11 U.S.C. 523(a)(8). That section of the Bankruptcy Code prevents discharge of four distinct categories of educational loans:
- Loans made, insured, or guaranteed by a governmental unit;
- Loans fully or partially funded by a governmental unit or nonprofit institution;
- Obligations to repay funds as an educational benefit, scholarship, or stipend; and
- Any “qualified educational loan” as defined by Section 221(d)(1) of the Internal Revenue Code (“IRC”) of 1986.
The final category is the one we’re examining here. A “qualified educational loan” as defined by IRC 221(d)(1) is “any indebtedness incurred . . . solely to pay qualified higher education expenses.”
So in order to be a “qualified education loan,” the debt must be solely made for qualified higher education expenses. Thus, if a private student loan is partially outside the cost of attendance to a particular educational institution, then the entire loan is non-qualified and can be discharged. The IRC defines “cost of attendance” as “tuition, books and a reasonable allowance for room and board.” Loans made in excess of certified federal limits can be discharged in bankruptcy.
Make your case
Non-qualified private student loans made in excess of the “cost of attendance” are dischargeable. But you must file an adversary proceeding in your Chapter 7 bankruptcy to request that the court find those loans dischargeable.
Courts narrowly construe exceptions to discharge against creditors. So the student lender must (and will) fight your adversary proceeding and prove its case or your loan will be discharged in your Chapter 7.
You will need to meticulously document and calculate your loan amounts and for what purposes you used the funds. You will also need to research the cost of attendance figures for the institution(s) you attended. Student lenders do not just roll over in these cases, so you must be prepared to make your case.
They Called. They're Glad They Did.
Brian Lee from Lee Legal was an amazing attorney to work with. He took his time, reviewed my documents and we discussed my situation thoroughly. He explained the process and my options as well as gave his recommendation. Not only did he assist, but he ensured that I knew this...
I was very nervous and scared about going through this process. But Brian was very knowledgeable and helped me through it. I was notified about any and all updates to my case and he was very responsive when I had questions regarding any concerns I had. Although a bit nerve...
Brian provided me with a very detailed analysis about my potential case after our first consultation. He promptly responded to all my complex questions, especially navigating student loans and some tax discussions. He is very professional and experienced at what he does, I would...
I've had the pleasure of working alongside Brian V. Lee for several years, and I can say without hesitation that he is one of the most knowledgeable bankruptcy attorneys in the DMV area. Brian's command of Chapter 7, 11, and 13 practice is exceptional, and his clients in the DC...
Brian has the amazing talent of taking complicated legal matters and distilling them down to seamless, frictionless resolutions. He is a phenomenal problem solver and a trusted advisor.
Brian is both warm and professional. He helped me navigate a financial issue that I had not been looking forward to working on and he made the entire experience non-stressful, receiving a lot of anxiety I had around the matter. He is straight forward and a fantastic problem...
I had the opportunity to work with Brian at a time when I was challenged by a professional setback and forced with the challenge of making some very difficult legal decisions. Additionally, I worked with him again as I was dealing with some financial issues pertaining to my...
Still several years from Public Service Student Loan Forgiveness and saddled with significant student loan payments in proportion to my income, I came to Lee Legal to explore the bankruptcy path. Through his counsel, Brian took the fear out of the process and helped me to...
