New Ruling Suggests Private Student Loans May Now Be Discharged in Bankruptcy
The way bankruptcy courts treat student loans has been a hot-button issue for years in the United States.
Given that the total amount of student loan debt in the U.S. is estimated at $1.7 trillion and the average borrower owes almost $38,000, the inability to discharge student loan debt has significant financial repercussions for borrowers.
For those with student loans taken from private lenders, like banks and finance companies, (as opposed to federal student loans), this situation may be changing. Thanks to a recent court ruling, there are better arguments available for discharging private student loans in bankruptcy. Keep reading to learn more from the Ohio bankruptcy lawyers at Amourgis & Associates.
Can Private Student Loans Be Discharged in Bankruptcy?
The recent court ruling comes from the New York-based Second U.S. Circuit Court of Appeals. The case involved a man who filed for Chapter 7 bankruptcy in New York in 2009. He obtained a discharge order in 2009, but the order was unclear regarding whether his private student loans, totaling $12,567, could be discharged. The servicer of the loans, Navient Solutions LLC, wanted the loans paid back, and the man agreed.
The case usually would have ended there, but in 2017 the plaintiff reopened his bankruptcy case in an attempt to pursue a class action case against Navient. In his new claim, the man accused Navient of repeatedly demanding repayment of student loans from various borrowers when those debts were discharged through bankruptcy.
Navient moved to dismiss the case, arguing the loans could not be discharged under a provision of bankruptcy law that prevents a borrower from discharging “an obligation to repay funds received as an educational benefit.”
On July 15, 2021, the Second Circuit Court of Appeals issued its ruling in favor of the plaintiff. In their ruling, the judges said the language in existing bankruptcy law is vague and did not apply to all student loans. Therefore, according to the ruling, borrowers with private student loans (as opposed to federal student loans) could potentially have those debts discharged.
This ruling from the Federal Second Circuit Court of Appeals is not currently the law in Ohio, which falls under the Sixth Circuit Court of Appeals. However, attorneys can point to this ruling in an effort to persuade Bankruptcy Courts in Ohio to follow the same reasoning.
What Type of Bankruptcy Should I File for Private Student Loans?
There are two main types of bankruptcy options for individuals: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is generally for those genuinely overwhelmed by their debts, while Chapter 13 is for people with a little more disposable income. Which option is right for you will depend on your circumstances.
Regardless of which chapter you file under, it is likely that you would need to file for an adversary proceeding in order to get any portion of your student loans discharged. An adversary proceeding is a lawsuit within your bankruptcy case. Historically, in order to get any student loans discharged, a borrower would have to show that repaying the loans presented an “undue hardship” – a standard that was very difficult to meet. Now, there is an argument a less difficult standard applies to private student loans. An experienced bankruptcy lawyer from Amourgis & Associates can advise you on the best strategy to accomplish your financial goals.
How Our Ohio Bankruptcy Attorneys Can Help
The bankruptcy process is complicated but can provide debt relief when you need it most. With so much at stake, it’s always wise to consult with a trusted attorney. The Ohio bankruptcy lawyers at Amourgis & Associates can walk you through the basics of filing for bankruptcy, help prepare your claim, and represent you in court in pursuit of the best possible results.
Don’t wait to get on the path to financial security. Contact our office today for a free initial consultation.
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At Amourgis & Associates, Attorneys at Law, we only represent consumers. We fight for regular people who have been seriously hurt in accidents. We fight for people who are being crushed by overwhelming debt and need a fresh start. We fight for individuals and families. Never businesses. Never insurance companies. We are loyal to the consumer.
