Although Chapter 7 bankruptcy discharges most unsecured debts, student loans are a significant exception. Anyone who has attempted to be relieved of this often-staggering financial burden will say that itâ€™s next to impossible.
Before 1976, education-related debts could all be discharged via bankruptcy. This, predictably, resulted in scores of students amassing debt for higher degrees and then failing to repay the loans. To protect these federal investments, a new law made it impossible to discharge a student loan for first five years, and then seven years. Restrictions tightened until, by 2005, it was practically impossible to discharge any type of student loan, even private ones. The only chance is to prove that repaying the loans would cause â€œundue hardship,â€ but the only people who typically succeed in discharging student debt loans are those who have an extensive physical disability that prevents them from maintaining gainful employment.
What about unpaid college tuition?
This is an interesting situation. Current and former students who funded their college expenses (which may include tuition, textbooks, supplies, and board) without taking out a student loan or signing a promissory note to the college may be able to discharge their past due payments, provided that certain criteria apply to their particular situation.
Case in point: if the college sends you an invoice and you do not pay due to financial difficulties, then you technically owe money to the school, but it is not a loan. Unpaid college tuition is not the same thing as an unpaid student loan because you did not borrow money and sign a written agreement promising to repay it. Therefore, you should be able to include it in a Chapter 7 bankruptcy and wipe it out after your discharge.
One notable New York court case, Dâ€™Youville College v. Girdlestone, ended with the judge declaring that the 2005 changes in the bankruptcy code did not apply to unpaid college fees. The student in question had gone to the school for a single semester and agreed to pay tuition but did not take out a loan or sign a promissory note. 11 USC 523 (a) (8) also confirms that the dischargeability of school debt hinges on whether or not it is a type of loan.
If you are thinking about filing for Chapter 7 and have education-related debts that you want to be discharged, then contact a New York bankruptcy attorney today. Some colleges format their billing paperwork to make unpaid tuition debt look like a loan and create the assumption that the debt cannot be discharged. This practice is not ethical and does confuse many would-be bankruptcy filers, so be sure to have the attorney closely review all relevant paperwork to confirm that you indeed have a chance at a fresh start.
Contact Jayson Lutzky, P.C. to set up a free initial in-office consultation with attorney Jayson Lutzky. Mr. Lutzky has over 33 years of legal experience and files personal bankruptcies to help his clients get a fresh financial start.