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Are Your Student Debts Student Loans?

Baseball pitcher Tom Glavine was recently enshrined into Major League Baseball’s Hall of Fame in Cooperstown, New York. Glavine’s Hall of Fame plaque describes him as a “Durable, dominant and deceptive starting pitcher whose control, change of speeds and placement of pitches translated into 305 wins.” Glavine was renown for pitching to the corners of the plate, away from the batter’s strength.

Glavine’s approach is copied by many bankruptcy attorneys when attempting to discharge a student loan. The federal courts have interpreted the “undue hardship” standard for discharging a student loan as an extremely high bar. In most cases, seeking to discharge a student loan on the basis of undue hardship is simply setting the creditor up for a home run.

Instead, many bankruptcy attorneys nibble at the corners of the Bankruptcy Code.

One discharge tactic is to exploit the distinction between student loans described in Bankruptcy Code Section 523(a)(8)(A)(i) and student debts defined in Section 523(a)(8)(A)(ii). A nondischargeable student debt is “an obligation to repay funds received as an educational benefit, scholarship or stipend[.]” The key language here is “repay funds.” Some courts have found that “an obligation to repay funds” can only arise after funds are actually distributed. If no money changes hands, then the debt does not qualify under Section 523(a)(8)’s exception to discharge. See In re Oliver, 499 B.R. 617 (Bankr. S.D. Ind. 2013); In re Christoff, 510 BR 876 (N.C. Cal. 2014).

This approach is useful when a college or university keeps a student “tab” for tuition, fees, and/or education-related expenses. Since no funds are distributed, no obligation to repay is created. Consequently, these debts are not excepted from the bankruptcy discharge.

Nibbling at the corners can mean real victories on the ball field or in the bankruptcy court. If you are obligated for student debts or student loans, speak with an experienced bankruptcy attorney and discuss your options.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to