It is most commonly understood that “student loans are not dischargeable” when a debtor files bankruptcy such as chapter 7. This has been the general rule for quite some time. Trying to discharge a student loan obligation under the “undue hardship” standard is almost impossible except in very rare circumstances.
Now, while Congress discusses the possibility of a massive forgiveness program for government student loans (losses to US Treasury to be borne by the American taxpayers), several appellate courts have rather quietly issued opinions regarding private student loans. Suddenly, private student loans may be dischargeable, requiring a more detailed analysis of the type of loan, stipend, grant, or scholarship at question.
Three Circuit Courts have now ruled that private student loans sometimes are discharged. The Second Circuit’s opinion of July 15 is the latest ruling to dig into the weeds of Section 523(a)(8) and its precise statutory wording. In Homaidan v. Sallie Mae Inc., 20-1981 (2d Cir. 7/15/21), the Court ruled that a debtor’s particular debt had been discharged, and that Navient had continued collection efforts for years after the discharge order was entered.
This case joins two prior decisions discussing student loan obligations in detail. See In re Crocker, 941 F.3d 206 (5th Cir. 2019) and In re McDaniel, 973 F.3d 1083 (10th Cir. 2020). Both of these cases were also against Navient Solutions, the student loan collection agency. Navient has been accused of intentionally attempting to collect dischargeable loans, which may lead to sanctions. The Homaidan case is a purported class action, but that has not yet been decided. These three recent cases are required reading, and mean that your attorney needs to know more details about the exact type of program and loan you have.
These cases may open the doors to more flexibility on certain loans now being considered to be discharged. This is a very important evolution of the understanding of student loans in bankruptcy, for the benefit of the borrowers.
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