Short term student loan question

[cynbkrpt]

About 12 years ago I had a hard time getting back to school after the birth of a child. I applied for FinAid but it hadn't come in when school started. So to cover tuition until my FinAid came in the school "loaned" me tuition. The funds were never disbursed to me and it was just technically an interoffice memo to wait til Federal aid came in. It was called a "short term loan" and it was due within a few weeks of school starting. I withdrew instead for that semester. Whether or not the tuition should have been wiped out is an discussion for another day.

My question is this: since it's "owed" directly to the school and the nature of the funding/recepient of the loan do you think it could be discharged? It's only a little over a thousand dollars. The school is the creditor, not a bank or the gov.

Thank you!!!!

[phoenyx]

Good question. I looked through my trusty Nolo Chapter 7 book, and will state my understanding that I got from it. If you're looking at filing Chapter 13 instead of 7, there may be some differences that I'm not aware of, but I don't think so.

It appears to me that it wouldn't be discharged, although you could talk to a bankruptcy attorney about whether they saw any way to discharge it in your particular situation. Most bankruptcy attorneys even provide free initial consultations. Furthermore, you could certainly persue whether it should have been wiped out as you said.

Previously, it was only student loans from nonprofit organizations that were not dischargeable without undue hardship. When they rewrote a lot of the bankruptcy laws, now almost all student loans are not dischargeable without undue hardship.

Unfortunately, to claim undue hardship, you usually have to be permanently disabled. That's a price we pay for being able to get low student loan interest rates. You have to: (a) be unable to pay now; (b) show that you will never

any indebtedness incurred by the taxpayer soley 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.

This new IRS section has generally been interpreted by the courts that any debt from higher education expenses are nondischargeable without undue hardship.

That being said, you might decide with your attorney to list them as a disputed debt, and if they don't object, I don't know if they would at least "go away" about trying to collect from you, even if the debt isn't discharged.