Is an "emergency deferment" student loan exempt from discharge (Texas)?

[BrokeInTexas]

Hi all. I'm planning on filing soon but I wanted to see if anyone was familiar with how an "emergency deferment" plan from the University of Houston (public state university) works in relation to filing Chapter 7. The payment plan/loan in question is here:

Emergency Deferment Plan:

Is only available to students who do not live in university housing.
Does not cover prior unpaid balances.
The deferment covers only tuition and required/mandatory fees for the current semester.
The plan defers payment until the 90th calendar day of the semester in the regular fall/spring semester
The plan defers payment until the 90th calendar day of the longest session in the summer term.
The deferment has a 5% annual percentage rate.
Requires that any credits to the account (financial aid, etc) must first be applied to the unpaid balance of the deferment.
The plan must be paid during the term for which it was entered.

Essentially you get 90 days from when you start the semester to pay your total tuition due for that semester, but you don't have to pay anything up front.

I enrolled in school but since I didn't feel completely committed to it I ended up dropping out after 3 weeks and wasn't able to get refunded any of the "emergency deferment" money despite my extremely limited time in classes, and it ended up getting sold to a collection agency who have since been sending me collection letters. The amount is around $7,500. My total CC debts are around $18,000 in addition to this $7,500, and I simply don't have the income to pay any of this off unfortunately. So, that's why I've decided to file. Anyway on to the question..

As far as I can tell, here are the relevant details of this loan:

- It is provided by the University and is not backed by the federal govt.
- It is considered a "payment plan" and I'm not sure it qualifies as a loan, even a private one since I didn't technically receive any money...just a deferment from paying my tuition for 90 days.

Can anyone answer definitively if this will be wiped out if I receive discharge? Here is the relevant law for student loan discharge exemption in Texas:

Generally, student loans are not discharged in bankruptcy. In 11 U.S.C. sec. 523(a)(8) there are two exceptions to this general rule:

The student loan may be discharged if it is neither - Insured or guaranteed by a governmental unit, nor
- Made under any program funded in whole or in part by a governmental unit or nonprofit institution.
The student loan may be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents."

So, would the University be considered a nonprofit, and as such this loan can't be discharged? Is there a possibility of this qualifying as an "undue hardship" since I didn't obtain any credit hours for the enrolled classes nor did I get a degree or make any sort of advances towards one for that semester? Anyone have experience with this type of "emergency deferment" plan or is this something I'm going to have to go to a lawyer to find out for sure before proceeding? Thanks guys!

[bcohen]

Of course, the University is considered a "nonprofit", however, unpaid tuition does not in and of itself create a student loan. In order to be a "qualified student loan" and thus exempted from discharge, there must have been a signed promissory note. Absent a signed promissory note, the debt is merely a debt owed to a university--not a "qualified student loan". Thus, as long as you didn't sign something promising to pay the money by such-and-such date, there is no student loan. You would merely include the university as well as the collection agency/agencies as creditors in your bankruptcy, and the debt will be discharged. Once the debt is discharged, the university can no longer attempt to collect from you, and courts have ruled that withholding a transcript is a form of collecting a debt.

Please note that if you DID sign something agreeing to pay these monies, or aren't sure if you did, then it's time to see an attorney, as you will need more help than what an Internet forum can provide.

[BrokeInTexas]

Thanks bcohen. I never "signed" anything but I did click a box that stated I would pay it back by such-and-such date and that it was akin to signing a note (that was even the wording on the online document), so I suppose I need to see a lawyer about it.

[tobee43]

bcohen, just a quick question i have for you, if you don't mind. this question likely has been asked and answered, but if someone attended a university or college got their loans directly from school, also rec'ing different loan types (some government backed) ,to complete their education, and then roll them all up into one loan, and transfer them to a private lender that is not backed by the government, is that type of loan dischargable? keeping in mind that the "new" lender paid all government loans back.

i guess it's on the lines of one charging their education with credit cards, years pass one decides to file bk, would those amount still be able to get discharged since they are on personal credit cards but they went towards education?

[bcohen]

bcohen, just a quick question i have for you, if you don't mind. this question likely has been asked and answered, but if someone attended a university or college got their loans directly from school, also rec'ing different loan types (some government backed) ,to complete their education, and then roll them all up into one loan, and transfer them to a private lender that is not backed by the government, is that type of loan dischargable? keeping in mind that the "new" lender paid all government loans back.

i guess it's on the lines of one charging their education with credit cards, years pass one decides to file bk, would those amount still be able to get discharged since they are on personal credit cards but they went towards education?

If you use a credit card, personal loan, or other type of non-student loan to consolidate or repay your student loans, the new loan itself is not non-dischargeable as such, but the lender will file an AP and object to discharge. If it can be shown that a person used a dischargeable type of loan to repay or consolidate a non-dischargeable type of loan, the new loan will be ruled non-dischargeable. That is why the idea of using credit cards to pay off your student loans, and then BK'ing the credit cards wouldn't work. (Of course, a smarter person could instead use their credit cards to pay their living expenses, while repaying the student loan with their income, and then they'd get away with BK'ing the credit cards.)

[BrokeInTexas]

Just a quick update, I received the actual verbiage from the deferment plan today from the University. Here it is in case anyone is interested or can help further before I go meet with a lawyer:

Emergency Deferment Agreement


"A STUDENT WHO FAILS TO MAKE FULL PAYMENT OF TUITION AND MANDATORY FEES, INCLUDING ANY INCIDENTAL FEES, BY THE DUE DATE MAY BE PROHIBITED FROM REGISTERING FOR CLASSES UNTIL FULL PAYMENT IS MADE. A STUDENT WHO FAILS TO MAKE PAYMENT PRIOR TO THE END OF THE SEMESTER OR TERM MAY BE DENIED CREDIT FOR THE WORK DONE THAT SEMESTER OR TERM."

I promise to pay the University of Houston ("University"), or its order, the sum of tuition and fees with interest at the rate of five (5) percent per annum. I understand this deferred payment plan will not apply to any prior unpaid balance.

I make this note subject to the following conditions:

1. I, my sureties, guarantors, heirs, and legal representatives severally waive demand, presentment for payment, notice of dishonor, protest and notice of protest, and diligence in collecting or in bringing suit.
2. I may repay all or any part of the principal at any time before maturity.
3. I agree to inform the office of student financial services of any change in my address until this note is paid.
4. If I am awarded student financial aid subsequent to the origination of this note, it will be applied first to my outstanding indebtedness.
5. If I default in the payment of this note or any of the above conditions, I may be subject to the following actions:

a. The entire unpaid principal balance, together with accrued interest will be become due and payable immediately.
b. The outstanding amount will be charged to my student account, all university services will be severed, and I will be charged a fee of fifty ($50.00) to restore such services.
c. My account may be assigned to a collection agency, and a collection fee of 25% of the outstanding account balance will be added to my student account balance at the time of referral.
d. My account may be referred to attorneys, in which event I agree to pay reasonable fees, costs of court, and any other costs and expenses associated with collecting the unpaid balance.
e. I will lose my eligibility status for future such loans.
f. If I fail to make full payment by the due date I will be subject to any sanctions as indicated in the student handbook.

These are the terms you agreed to when you applied for and received this deferred pay plan through the student self service system.
It is recommended that you print this agreement for your records.

[tobee43]

If you use a credit card, personal loan, or other type of non-student loan to consolidate or repay your student loans, the new loan itself is not non-dischargeable as such, but the lender will file an AP and object to discharge. If it can be shown that a person used a dischargeable type of loan to repay or consolidate a non-dischargeable type of loan, the new loan will be ruled non-dischargeable. That is why the idea of using credit cards to pay off your student loans, and then BK'ing the credit cards wouldn't work. (Of course, a smarter person could instead use their credit cards to pay their living expenses, while repaying the student loan with their income, and then they'd get away with BK'ing the credit cards.)

what if it was years and years ago??

BrokeInTexas well, that's pretty clear on what the terms are. no question about that.

[bcohen]

what if it was years and years ago??

Doesn't matter. See 26 USC 221(d) which defines a "qualified student loan" to include indebtedness taken out to refinance one or more "qualified student loans".

In any case, the real question is whether or not merely clicking the box to accept the agreement posted above (which is no doubt required by the university's online system in order to register for classes) in and of itself creates a "qualified student loan" as defined under the law. An attorney would have to answer that.

[LadyInTheRed]

Generally, student loans are not discharged in bankruptcy. In 11 U.S.C. sec. 523(a)(8) there are two exceptions to this general rule:

The student loan may be discharged if it is neither - Insured or guaranteed by a governmental unit, nor
- Made under any program funded in whole or in part by a governmental unit or nonprofit institution.
The student loan may be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents."

I don't know where you got that, but it is not a complete summary of the description of student loans that are excepted form discharge:

Here is the language of 11 USC § 523(a)(8) describing student loans as one kind of debt that is not dischargeable in bankruptcy:

[B](8)unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)
(i)an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii)an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B)any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

http://www.law.cornell.edu/uscode/text/11/523

You say you checked a box. I am guessing that is one box on a document that you signed somewhere. The text you quote is a promissory note.

ETA: I reread the thread and now see that you "clicked a box". So, this was an online registration form? I am sure it is an enforceable contract. I haven't read much of this, but here are some links on the law of electronic contracts:
Nolo Press summary:http://www.nolo.com/legal-encycloped...cts-29495.html
Federal Law: http://www.law.cornell.edu/uscode/text/15/chapter-96
Texas Law: http://www2.dir.state.tx.us/pubs/Pages/uetaguide.aspx

If you can't enter a binding contract by clicking on a button, there would be a lot of things we couldn't do online that we do all of the time.

[LadyInTheRed]

So, would the University be considered a nonprofit, and as such this loan can't be discharged? Is there a possibility of this qualifying as an "undue hardship" since I didn't obtain any credit hours for the enrolled classes nor did I get a degree or make any sort of advances towards one for that semester?

An undue hardship means there is no way you will ever be able to pay off the loan. It is pretty much for people with severe permanent disabilities.

[BrokeInTexas]

Thanks for the clarification. My question isn't whether the contract was legitimate or binding (I'm aware that it is), but rather, if this would be considered a "qualified student loan" or not since I never technically received any funds. I'm meeting with a lawyer tomorrow and will report back if it gets clarified completely.

[LadyInTheRed]

You signed a promissory note which means you borrowed money to pay tuition. You may not have received the cash, but it was used to pay your tuition which allowed you to attend classes. It sounds like a qualified student loan to me. The fact that you didn't finish the classes doesn't change the fact that you incurred the loan to pay for higher education expenses.

Section 221(d)(1) of the Internal Revenue Code of 1986:

(1) Qualified education loan
The term “qualified education loan” means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses—

(A)which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,

(B)which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and

(C)which are attributable to education furnished during a period during which the recipient was an eligible student.
Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term “qualified education loan” shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) or under any contract referred to in section 72(p)(5).

http://www.law.cornell.edu/uscode/text/26/221

[BrokeInTexas]

So, if I'm operating under the assumption that this will be exempt from discharge, then filing likely isn't in my best interest? If I were to file, would it be up to the University to object to the discharge or would this be something the court would simply point to as a loan that is not eligible for discharge before the University objects?

Thanks again for all your help.

[LadyInTheRed]

The loan would not be part of the discharge unless you petition for discharge based on hardship and win. The University does not have to object for it to be excluded because it is excluded as a matter of law.

Whether it is in your best interest to file BK to discharge $18000 in cc debt is hard to say based on the information you've provided. Are you employed? What is your income and monthly expenses? If you aren't employed, do you have any barriers to getting employed? Have you tried to set up a realistic budget that allows for the pay down your debt?

[bcohen]

I disagree that merely checking the box to accept the terms and conditions posted above--which would be required in order for the computer system to accept a student's class registration--in and of itself constitutes a valid student loan contract. Such a "contract"--if it were to be considered as such--would be a contract of adhesion, and very different from the situation where a student takes the affirmative steps of applying for a student loan, signing a promissory note, specifying the school to receive funding, etc. Courts do not always uphold contracts of adhesion, especially when the debtor can argue that the "contract" was made under duress, in this case being able to process his course registration.

If you are seeing/have seen an attorney, the issue I would focus on is attacking the position that the unpaid tuition is in and of itself a student loan merely because a student must in order to register for classes check a box "agreeing" to verbiage which says he will repay the money. If the attorney feels that this is not a student loan, then when you file for bankruptcy, he could file a complaint to determine dischargeability--which most likely the university will not oppose--and then the Court will most likely rule that the debt is NOT a student loan, and can be discharged. If the university chooses to fight your attempt to discharge the debt, arguing that the unpaid tuition is in fact a "qualified student loan", that is when you would have problems.