People are becoming more and more aware that student loan debt is becoming a HUGE problem. With many college and post-grad students entering the workforce with high-five and six figure student loan debts, and jobs not paying income to keep up with the student loans (not to mention housing and other costs of living), bankruptcy might be the relief valve to help those dealing with student loan debt. For the last thirty years or so, student loans have largely been treated as unilaterally nondischargeable in a bankruptcy case. There have been exceptions (such as with a rare hardship discharge), but these are few and far between. Recently, a bankruptcy court in Ohio was presented with a student loan dischargeability case. Perhaps this scenario doesn’t come up as regularly as some other ones, but the good news is that it is a case that helps define and limit what is a nondischargeable student loan debt for bankruptcy purposes.
This case comes out of the bankruptcy court for the Northern District of Ohio. The debtor had filed for chapter 7 bankruptcy in 2015, and a discharge order was entered in September 2015. Thereafter, the company that serviced her student loans continued to send her bills and notices, still attempting to collect on the loans. These student loans were taken out by the debtor from 2008 through 2010, when she attended the American University of the Anitgua, a foreign and (presumably”) for-profit institution. Notably, as well, the institution appeared to have originated the loans, although the loans were now being serviced by a US-based company.
In its analysis, the court relied on a decision from our own bankruptcy court for the Eastern District of New York, In re Decena. The court reasoned that Congress intended to limit the scope of what is considered a student loan by creating several sub-sections in the law, and that an expansive interpretation of what is considered a student loan would render some of the language in the statute useless. Further, the court found no evidence (because the loan servicer did not appear in this case) that the student loans were “made, insured or guaranteed by a governmental unit;” that the student loans were “made under any program funded in whole or in part by a governmental unit or nonprofit institution;” or that the student loans were “qualified educational loans” as defined in the statute. For these reasons, the court agreed with the debtor and determined that these foreign student loans were discharged in her chapter 7 bankruptcy. In re Meyer, 15-13193-AIH (Bankr. N. D. Ohio, June 2016).