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  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Leslie Miranda, Esq., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Marley Smith-Peters
    • Melanie Chan
    • Tanner DeMera
    • Charles Ecker
    • Anna Gurr
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
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        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
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          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
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          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
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          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
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          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
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        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
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    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
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Bankruptcy and Student Loans

Bankruptcy and Student Loans

Are Student Loans Dischargeable in Bankruptcy?

For many years conventional wisdom has been that student loans are not eligible for discharge in bankruptcy filings. However, as we learn more about bankruptcy and student loans, we have found recent court rulings which may be opening the door for some borrowers to wipe out their student loan debt, permanently.

Under existing federal laws, Congress exempted federal student loans from discharge through bankruptcy decades ago and in 2005 extended that exemption to also include private student loans. For years, borrowers and their attorneys tried to have student loan debt wiped away typically argued it was imposing an undue hardship on the borrower — a carve out in the law that made the debt dischargeable but was a notoriously hard standard for borrowers to meet.

Hardship Bankruptcy Discharges Are Rare

How hard is it? As an example, the Department of Education contested the case of a grandmother with $73,000 in student debt, working over 50-hours a week at two jobs to support herself and her autistic grandson, saying she exaggerated her food budget because she accepted food from a pantry that feed the poor and then contested her medical expenses because she did not produce receipts.

For a student loan to be considered non-dischargeable in bankruptcy court, it needs to fit into at least one of four categories:

  • A loan from the government
  • A loan from a nonprofit organization
  • Any other type of loan for qualified educational expenses
  • An obligation to receive funds as an educational benefit, stipend, or scholarship.

But in recent cases attorneys have argued their clients did not fit into those four categories. In some instances, the loans received were not certified to pay for the cost of attendance and the money went directly into personal bank accounts and not those of the educational facility. In other cases, the loans were used for non-accredited programs like culinary courses, coding bootcamps or other career training programs at non-degree granting schools.

Court Rulings Are Changing

And now appeals courts are starting to agree with those determinations. In one case Hilal Homaidan filed suit against student loan processor Navient, alleging the company illegally collected on $12,567 in private loans borrowed from Sallie Mae, Navient’s corporate predecessor, after he had filed for bankruptcy.

The money was not used to cover the cost of attendance and went directly to Homaidan’s bank account instead of being processed through the school’s financial services office. His bankruptcy lawyers argued the loans fell outside the four defined categories and consequently were eligible for discharge and the court agreed. So far, three different appeals courts have reached similar conclusions.
While the ruling is a win, Navient claims the grounds are extremely narrow  and only applies to  a small group of borrowers.

However,  a recent report authored by Pamela Foohey of Yeshiva University’s Benjamin N. Cardozo School of Law, Aaron Ament, and Daniel Zible from the National Student Legal Defense Network, states the rulings could impact more than 2 million borrowers owing as much as 50 billion dollars.

The Push for More Leniency in Discharging Student Loan Debt in Bankruptcy

Bankruptcy advocates have started urging the Department of Education to implement lenient policies for student loan borrowers trying to discharge debts in bankruptcy because of undue hardship and to create guidelines to decide when and when not to contest discharge filings. For instance, the Department might decide not to contest the discharge of student debt if Social Security benefits account for at least 50% of a filer’s income.

One thing is certain, legal rules on student loan bankruptcies are changing. The bankruptcy legal team at RJS LAW is monitoring the shifting case law. If you are burdened by high student loan debt and are considering bankruptcy as a possible option, call us today for a free confidential case evaluation at (619)-595-1655. Our experienced Bankruptcy attorneys will review your specific issues to determine if these changes may help you discharge your student loan debt as well as other available options.

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Filed Under: Bankruptcy, Bankruptcy Laws, Student Loans Tagged With: bankruptcy, Bankruptcy and Student Loans, bankruptcy law, Student Loans

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