Federal Court Says Student Loans Can be Discharged in Bankruptcy
If you have student loans and are considering the option of filing for bankruptcy because you cannot manage the debt, you are not alone. Millions of Americans are struggling with student loan payments, yet few decide to file for bankruptcy in order to discharge those loans because of the common perception that student loans are difficult or impossible to discharge in bankruptcy. It is certainly true that student loans are not as easy to discharge as other types of debt, it is possible to have student loans discharged in a Chapter 7 or Chapter 13 bankruptcy case. A recent federal court decision suggests that it may get even easier to have certain student loans discharged in a personal bankruptcy case.
Indeed, a recent decision from the Second Circuit Court of Appeals held that “private student loans are not protected from discharge in bankruptcy,” according to an article in Reuters. While that federal court opinion occurred outside the circuit governing cases in Illinois, it may be persuasive to other courts in the Chicago area and across the country.
Private Student Loans Can be Discharged in Bankruptcy
The Reuters article explains that this recent federal court decision “is significant for people who might have wanted to seek bankruptcy relief to address their student loan debt but felt they could not because they assumed their private loans would not be dischargeable.” The recent case concerned an Emerson College graduate, Hilal Homaidan, who filed for Chapter 7 bankruptcy back in 2009 and had his debt discharged, yet “the discharged order was unclear about whether it applied to Homaidan’s two private loans, which totaled $12,567.” Those private student loans were held by Navient, and Navient continued to seek repayment of the student loan debt following Homaidan’s bankruptcy discharge.
Homaidan ultimately repaid the student loans. However, in 2017, he reopened his bankruptcy case and filed a “putative class-action against Navient, accusing it of a pattern of demanding repayment on loans that were discharged in bankruptcy.” Navient argued that the private student loans it provided to Homaidan, and that it provides more generally, are ineligible for discharge due to “a provision of bankruptcy law that prevents a borrower from discharging an obligation to repay funds received as an educational benefit.”
The court disagreed with Navient, as have other federal circuit courts, including the Fifth Circuit Court of Appeals and the Tenth Circuit Court of Appeals. This new ruling suggests that federal courts are not going to allow private student loan services to prevent debtors from having private student loans discharged through bankruptcy.
Getting Your Student Loans Discharged in Bankruptcy
Different courts use different tests to determine whether a person’s student loans can be discharged in bankruptcy. Yet in general, a debtor must prove that continuing to make payments on student loans would constitute an undue hardship.
While that test is still valid, it is important to know that it does not prohibit debtors from seeking to discharge student loans in their bankruptcy cases. You cannot know whether or not you will be eligible to have your student loans discharged unless you try.
Contact Our Oak Park Bankruptcy Lawyers
Do you have questions about having student loans discharged in a consumer bankruptcy case? One of our experienced and dedicated Oak Park bankruptcy attorneys can assess your case for you today. We have years of experience serving consumers in the Oak Park area in bankruptcy cases and other consumer protection matters. Contact the Emerson Law Firm to learn more about how we can help.
See Related Blog Posts:
If a Family Member Cosigned a Loan, Can I Still File for Bankruptcy?
“Spike” in Consumer Bankruptcy Filings May Occur Soon
Indeed, a recent decision from the Second Circuit Court of Appeals held that “private student loans are not protected from discharge in bankruptcy,” according to an article in Reuters. While that federal court opinion occurred outside the circuit governing cases in Illinois, it may be persuasive to other courts in the Chicago area and across the country.
Private Student Loans Can be Discharged in Bankruptcy
The Reuters article explains that this recent federal court decision “is significant for people who might have wanted to seek bankruptcy relief to address their student loan debt but felt they could not because they assumed their private loans would not be dischargeable.” The recent case concerned an Emerson College graduate, Hilal Homaidan, who filed for Chapter 7 bankruptcy back in 2009 and had his debt discharged, yet “the discharged order was unclear about whether it applied to Homaidan’s two private loans, which totaled $12,567.” Those private student loans were held by Navient, and Navient continued to seek repayment of the student loan debt following Homaidan’s bankruptcy discharge.
Homaidan ultimately repaid the student loans. However, in 2017, he reopened his bankruptcy case and filed a “putative class-action against Navient, accusing it of a pattern of demanding repayment on loans that were discharged in bankruptcy.” Navient argued that the private student loans it provided to Homaidan, and that it provides more generally, are ineligible for discharge due to “a provision of bankruptcy law that prevents a borrower from discharging an obligation to repay funds received as an educational benefit.”
The court disagreed with Navient, as have other federal circuit courts, including the Fifth Circuit Court of Appeals and the Tenth Circuit Court of Appeals. This new ruling suggests that federal courts are not going to allow private student loan services to prevent debtors from having private student loans discharged through bankruptcy.
Getting Your Student Loans Discharged in Bankruptcy
Different courts use different tests to determine whether a person’s student loans can be discharged in bankruptcy. Yet in general, a debtor must prove that continuing to make payments on student loans would constitute an undue hardship.
While that test is still valid, it is important to know that it does not prohibit debtors from seeking to discharge student loans in their bankruptcy cases. You cannot know whether or not you will be eligible to have your student loans discharged unless you try.
Contact Our Oak Park Bankruptcy Lawyers
Do you have questions about having student loans discharged in a consumer bankruptcy case? One of our experienced and dedicated Oak Park bankruptcy attorneys can assess your case for you today. We have years of experience serving consumers in the Oak Park area in bankruptcy cases and other consumer protection matters. Contact the Emerson Law Firm to learn more about how we can help.
See Related Blog Posts:
If a Family Member Cosigned a Loan, Can I Still File for Bankruptcy?
“Spike” in Consumer Bankruptcy Filings May Occur Soon
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