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Student was able to discharge loans in Chapter 7 bankruptcy

On Behalf of | Nov 20, 2016 | Chapter 7 Bankruptcy, Firm News

One of the first things that Florida residents discover when they contemplate going to court for debt relief is that student loans cannot be discharged except under certain circumstances. Due to this fact, many people do not even try. However, a woman did ask the bankruptcy court to discharge her student loans when she filed for Chapter 7 bankruptcy, and the court granted that request.

When the woman entered into a financial contract with an educational institution, the agreement provided for the payment of registration costs, tuition and books in the future. She never received any funds personally and never signed a promissory note. The institution argued that the contract contained all of the required elements to make it a loan, but the bankruptcy court disagreed.

The agreement provided for the payment of interest, and the interest rate could be adjusted when financial aid was received. Furthermore, there was no indication of loan amount in the agreement. Due to these factors, the court allowed the woman to discharge the debt that the New York college claimed she owed since her situation fell within the exceptions provided for in the federal Bankruptcy Code.

This woman’s case illustrates the fact that having an advocate who understands the law — including its exceptions — can be invaluable. Florida residents who are under the impression that they can handle their Chapter 7 bankruptcy alone might want to think again. Even when there are no exceptions that can discharge debts such as student loans, the process can be complex and paper intensive. Missing even one deadline or document required by the court can result in a dismissal of the case.

Source:, “Bankrupt Student Can Discharge Debt Because It Wasn’t a Loan”, Diane Davis, Nov. 7, 2016

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