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Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2569
Experience:  Better Business Bur 15yrs bankruptcy experience. Chicago Bar
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I have $49,000 in PRIVATE student loans that were NOT certified

Customer Question

I have $49,000 in PRIVATE student loans that were NOT certified by the school. I did NOT use the funds to pay solely for "qualified educational expenses" because my cost of attendance was covered by my federal financial aid. My private student loans WERE not even capped at the cost of attendance. I used most of the funds to pay for unrelated expenses, and only used a portion to pay for transportation and rent which might be considered a part of cost of attendance. I am looking to file bankruptcy and thus file an adversary hearing to show that the private student loans that i received were NOT really educational loans. is there a possibility that a judge would at least issue me a partial discharge based on the fact that these loans were not really educational loans?
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  Terry L. replied 4 years ago.

Terry L. :

Hi and thank you for your question. In the future, you can request me to answer any further questions.

Terry L. :

Unfortunately, the courts have ruled in many previous cases, that what the proceeds were spent on is irrelevant.

Terry L. :

You must prove in the adversary that they are an undue hardship, which is extremely hard to do.

Terry L. :

1. Prove you paid them when you could.

Terry L. :

2. That you have no current ability to pay them anything (so far below the poverty line that you cannot even afford basic necessities).

Terry L. :

3. (usually the hardest) Prove that you have no future ability to pay them. (usually the cases I've seen successful were where there was a debilitating injury preventing them from seeking gainful employment).

Terry L. :

Now, you can still try to prove that the debt was not and educational loan.

Terry L. :

The loans do not need to be certified by the school.

Terry L. :

If the government backed the loan in any way (usually a sponsored program where the banks get federal money to loan for education) you may be out of luck here.

Terry L. :

If the loan mentions for educational purpose anywhere, you are fighting an uphill battle.

Terry L. :

It doesn't cost anything but time (and possibly attorneys fees) to file and prosecute the adversary. So it could be worth a shot to try. If they don't respond, then they will be discharged!

Terry L. :

Good luck, thanks for your question.

Customer :

yes thank u so much for the quick response. my loans are 100% private, no federal funding or affiliation. I plan to file an adversaey hearing without an attorney as I am going bankrupt and cant afford to pay $5000-$10000. how likely are the lenders (chase, huntington) going to respond? is there anything i can do to increase my chances of winning?

Terry L. :

To be honest, I think it is a losing battle unless the debt was a signature loan totally unrelated to education. The mere fact that you are considering it an educational loan, leads me to believe that it will not be discharged. They will respond, educational debt. Then you must prove that it is not.

Terry L. :

As I mentioned, if the word education is mentioned at all anywhere in the loan docs, or if it was set up thru school, or if the loan was funded thru a federal program, it is likely to be an educational debt for which you must prove the undue hardship.

Terry L. :

what bank is it whth?

Terry L. :

Order copies of all your original loans to see if they mention education, or similar terms.

Terry L. :

Best of luck.

Customer :

Chase and huntington, 100% private. I received the funds through the mail.

Customer :

yes it did mention education. however, if you dont mind can you just skim throught the top portion of


Limitations on Exception to Discharge of Private Student Loans.


 

Terry L. :

That is the basis for you to attack them, but as I mentioned, all cases I've seen fail because they were backed by the gov't/non-profit, or they were for an educational benefit as set out in those docs, regardless of the ultimate use.

Terry L. :

You can sure try, I encourage you to hire an attorney to review your loan docs to best attack them, since they are familiar with these rules, and the very small loopholes involved.

Customer :

but is a partial discharge more likely than a full discharge?

Terry L. :

That would be up to the judge, and would base that on hardship,. so sounds unlikely

Terry L. :

you would need to litigate each element you are challenging

Customer :

what does that mean?

Terry L. :

Each part of the rule that you feel your loan does not meet, you must challenge in court, with documents, experts, caselaw, etc.

Customer :

wow, I really wished the court didnt treat us like criminals :(

Terry L. :

No, Congress has made it extremely difficult to discharge educational loans,

Terry L. :

since the loans allowed the debtor to earn more money with a better job

Terry L. :

that is the reasoning

Customer :

thank you so much for your time terry :), I hoe the laws change to at least promote lender accountability and responsibilty. I understand I made a mistake, but what do they expect an 20 year old to do if you send him $50k in the mail?

Terry L. :

write your congressperson

Terry L. :

Best of luck to you with the adversary!

Customer :

:)

Terry L. :

sure thing

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