Bankruptcy Law Blog

Saturday, May 7, 2016

Law Student Allowed to Discharge Bar Study Loan

Can you be relieved of any education related loans in bankruptcy?

Student loan debt is a overwhelming problem in this country.  In fact, it has been calculated that the average person has approximately $28,950 in student loan debt to pay back to the government.  Those who pursue careers as professionals, such as physicians and lawyers, often have a much greater amount than that.  Some have hundreds of thousands of dollars in loans.  Unfortunately, student loan debts are generally considered nondischargeable in bankruptcy (with certain exceptions).  This means that filing bankruptcy will not wipe out your student loan debt.  But, you may be able to get rid of other education related costs.

Pace University School of Law graduate Lesley Campbell has $300,000 in student loans.  Unforuntalely, she failed the Bar exam and has been unable to find work in her desired field except as a document reviewer.  In 2014, she filed for bankruptcy.  While her federal student loans could not be discharged, it was unclear what would happen to the remainder of a $15,000 Citibank loan she had used while studying for the Bar exam.

The court grappled with whether this loan should be considered a nondischargeable “educational benefit.”  New York Bankruptcy Judge Carla Craig decided that it should not. She found that although the loan is education related, it should not be considered a benefit but a commercial transaction and therefore, be eligible for discharge under the bankruptcy law.

Although the court’s findings are not binding on other courts, they are persuasive.  It is also one of the first times that the bankruptcy court has found in favor of the student in this type of case. This decision will likely lead to a wave of these cases in the future. 

If you are overwhelmed by debt of any kind, bankruptcy may provide you with some form of relief.  Contact an experienced Mobile and Baldwin County, Alabama personal bankruptcy attorney for a case evaluation today.

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