People who are considering filing for bankruptcy are often surprised and disappointed to learn that student loan debt usually cannot be discharged. This debt can often run into many thousands of dollars and be a significant financial burden for many years.
Under the bankruptcy code, borrowers must prove that paying back the debt would cause them “undue hardship.” Court rulings have largely upheld that standard.
However, what about student loan debt from putting your child through grade school and high school? Does that qualify as student loan debt under the law? After all, good private schools can cost parents as much as some colleges, and some take out loans to help cover those costs.
This is the question now before a court. The plaintiff borrowed $30,000 in 2008 through the K-12 Family Education Loan Program run by Sallie Mae. He is now suing a student loan debt servicer for violation of the Fair Debt Collection Practices Act. He says the company continued their attempts to collect on his debt for his children’s private high school fees even after he filed for bankruptcy in 2011.
The plaintiff’s attorney has argued that these K-12 education loans are not traditional student loans, but private, unsecured debt. This type of debt is dischargeable in bankruptcy.
However, there’s another category of debt that some argue that these K-12 loans fit into. That’s debt for something from which a person received an “educational benefit.” Another example of this would be bar exam preparation classes. Judges have not ruled consistently on whether these bar exam course loans qualified for discharge in bankruptcy.
When you are considering filing for bankruptcy, it’s essential to get sound legal guidance. An experienced bankruptcy attorney can advise you on what debts can and cannot be discharged and work to help you with any issues around debts over which there may be some dispute.
Source: MartketWatch, “Can money you borrow to pay for private high school be discharged in bankruptcy?,” Jillian Berman, April 14, 2016