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Is a judgment based on a defaulted private student loan dischargable in a Chapter 7 bankruptcy?

Los Angeles, CA |

I lost my job a year ago and defaulted on my private student loan about 4 months ago. They are demanding payment of the entire outstanding balance in 10 days and they threaten to sue me. If they sue me and win a judgment, can that be discharged in a Chapter 7 bankruptcy? Help please!

Attorney Answers 6

  1. Best answer

    I respecfully disagree with both Mr. Fenn and Mr. Oney. There definitely are circumstances under which a Chapter 7 discharge extends to private student loans. To be non-dischargable a loan must meet specific certain requirements of the Internal Revenue Code. This argument comes straight out off the Bankruptcy Code at section 523(a)(8). Creditors are understandably very prone to claiming tan expansive sweep of "student loan" non-dischargability, but debtors have rights under the law creditors like to disregard.

    I have just successfully confirmed discharge of loans made to a student with an aggregate balance of over $40,000 on that argument (although counsel for the defendant failed to challenge me on certain points). It is a myth far too prevalent among otherwise excellent bankrtupcy attorneys that student loans can never be discharged. The key is knowing whether the obligation qualifies as an "educational loan" within the meaning of the Bankruptcy Code.

    Your search for an attorney willing to take on this challenge may have to be extensive. My own clients told me after we won that several other attorneys had refused their case because it was impossible.

    I offer this information as a public service. I am not licensed to practice law in California, but in the event that you are able to interest an experienced bankruptcy attorney in pursuing this discharge, you may invite you attorney to contact me for further information, pleadings forms, and research resources for a successful adversary action.

    Best wishes for a favorable outcome, and please remember to designate a best answer.

    This answer is offered as a public service for general information only and may not be relied upon as legal advice.

  2. The short answer is 'no.' Student loan debt is virtually impossible to discharge under the currently bankruptcy code. The fact that the debt might change forms from a basic unsecured debt to a judgment does not change the original character of the loan.

    Brian C. Fenn <b><a href="">FENN LAW FIRM</a></b> 29222 Rancho Viejo Rd. Ste. 102 San Juan Capistrano, CA 92675 Tel/Fax: (800) 994-9079

  3. Attorney Fenn is correct. I once took a case up on appeal, arguing that once the student loan creditor obtained a judgment, the student-loan-ness of the debt got wiped out. I lost.

  4. I agree with attorney Fenn that any such judgment would not be dischargeable, but would also suggest you look into alternative payment arrangements for the loan. There is a federal government website for the Consumer Financial Protection Bureau that contains a database of student loan information and will help you identify what type of loan you have and what payment arrangements might be available to you, for federally-backed student loans and many private student loans. Options often include payment deferment or forebearance. The web address is:
    Another option is to contact the lender directly and explain your work & financial situation and ask if they can set you up with a reasonable payment plan or if they can give you a deferment so that you can delay payments until you resume work. Most lenders would rather work out an arrangement with you than sue and obtain a judgment that may not be collectible at this time anyway.
    Hope that helps -

  5. The best thing to do is see a "certified bankruptcy specialist" in Los Angeles. The county bar charges about $40 to find an attorney for you , or they can waive the fee too. The court in this district offers pro se clinics for free, as well. Attempting to Discharge a student loan is very specialized and difficult area of BK law. While general information can be dispensed to a broad range of people over social media, and good lawyers can be easily previewed over avvo dot com, the next step is to sit down with local, experienced counsel.
    Only attorneys licensed in the state of California who maintain an office in the state can practice law in this state .

    The answers on this discussion board are general in nature and NOT intended as legal advice. Responding to questions does not constitute an attorney-client relationship. Always see a lawyer about your individual situation.

  6. Student loans are generally non-discargeable in bankruptcy without a finding of "undue hardship." If you file a Chapter 13 the debt will sit in the unsecured pro rata pool with the other unsecured debts and it will either be paid back at a lower percentage or not at all. This will be the equivilant of the 5 year deferment as long as you stay in the Ch 13 plan

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