Some Private Student Loans may be Discharged in Bankruptcy

Some Private Student Loans may be Discharged in Bankruptcy. Three different US Circuit Circuit Courts, namely the Second Circuit, the Fifth Circuit and the Tenth Circuit, have all reached the conclusion that Private Student Loans may be dischargeable. For years, Private Student Loan lenders have taken the position that their loans are excepted from discharge in bankruptcy because the loans constitute an “obligation to repay funds received as an educational benefit…” which is an exception in bankruptcy to discharge.  However, the aforesaid courts have examined the language an concluded that if Congress intended to except from discharge Private Student Loans it could have more easily and clearly said so. These courts have concluded that funds received for an educational benefit is something different. It is noteworthy that both New Jersey and Pennsylvania are under the Third Circuit Court of Appeals, which has not specifically ruled on this issue recently. However, while not bound by the decision of those other jurisdictions, a New Jersey or Pennsylvania bankruptcy court may be nonetheless persuaded that the view point is correct and follow those decisions to eliminate Private Student Loans. It is certainly worth exploring with your bankruptcy lawyer.