Is the trend changing for whether student loans can be discharged in bankruptcy? One court in New York is willing to go against the grain and rule for the student loan borrower. This court found that the borrower’s specific type of loan did not count as a student loan. Read the opinion here.
There are many different types of student loans private and public. The type of loan in question in this case was a private student loan (not backed by the government), and also the type for which the borrower does not get a tax deduction for the interest payments.
Most student loans are not private student loans. Private student loans are usually serviced by Sallie Mae or Navient. They are usually made by banks or loan companies such as Discover Student Loans. If there is a cosigner for the student loan, then it is almost certainly a private student loan.
If the loan is from Great Lakes or the Department of Education, then it is NOT a private student loan. Government student loans are only discharged in Minnesota if the borrower can prove that the borrower is incapable of working to make money in the future.
For this loan, the lender put the money directly into the borrower’s bank account and didn’t pay any tuition or qualified higher education expenses. The borrower was able to then take the loan proceeds and use them for anything he wanted. This was important to the decision because the loan was really just a personal loan to someone who happened to be a student. It wasn’t a loan to pay for college, but rather a loan to a college student.
New York is in the 2nd Circuit and Minnesota is in the 8th Circuit. That means that court opinions in New York do not necessarily control how the law works in Minnesota, so we can’t count on this sort of outcome in Minnesota. This type of loan is also rare.
If you have a private student loan where the lender put the money directly into your bank account and it wasn’t for Qualified Higher Education loans, then don’t hesitate to look into bankruptcy. We offer a free consultation to learn your options. Just call (612) 824-4357 and as for a free consultation.
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