Student Loans that aren't student loans

[Globu]

Short version:

Hi all. Can anyone point me in the right direction on whether I should file, pro se, a complaint (in California federal court) to determine dischargeability of a bar loan, where the lender is claiming it is a non-dischargeable student loan, and what will be involved?

Is it something on which you can get a categorical determination from the court without extensive, expensive proceedings, or is it going to be the subject of a litigation on which they have the huge advantage and for which they will be able to further get legal costs for their answer from me?

Any help will be much appreciated.



Little bit longer version:

I have searched these forums, but only found one unanswered post asking a question on this issue, so I was hoping someone could help at least point me in the right direction.

Okay. I'm one of those law grads that found out what a raw deal the whole law school thing is (unless you're one of an increasingly luckier few) in the last few years (check the articles on it -- it's now distinctly recognized as a bad investment to get a law education), and now find myself in Ch. 7.

So, here's the thing: I have an $18k bar exam loan and the lender has filed a precautionary notice of objection to discharge on it, claiming it is a student loan.

I read some advice to someone else on these forums that filing a Complaint to Determine Dischargeability pro se is very risky and not advisable, given that you'll have to go through a whole in-court adversarial proceeding and will be subjected to the creditor's legal costs if you lose. However, that was in regard to seeking hardship discharge on a definite student loan, which of course is, of necessity, a more substantial proceeding (the nearly impossible standard, fact-intense nature, and so forth).

So my question is this: is it also that arduous and risky to simply file a complaint to determine dischargeability where you believe it should not be classified as a student loan? And is it considered an adversarial proceeding which can force me to pay the lender's legal costs in addressing it? Can you simply get a court determination on the matter based on precedent?

It seems like this kind of issue would just have to have been addressed in some sort of precedent-setting way in the past, as lenders have an incentive to be quite broad and creative in classifying loans as "student loans" if they have any theoretical ground to do so.

And it seems to me that they are stretching it to claim that a loan taken to pay for living expenses during one's preparing for a professional certification exam is a "student loan" under the rationales applicable to the dischargeability rules for genuine student loans.

In my individual case, there are complications that give arguments both way, in case it helps answer the question, but I'm just interested in finding out if such determinations are relatively easy to obtain. If it is relevant in any way, the complications are:

(1) The lender (KeyBank) clearly went to pains to make the contract look like a student loan, and the text of it clearly states that it is and evidences that there was verification that I recently attended and graduated from law school.

(2) I took the BarBri bar exam prep course, but I didn't actually pay for it with funds from the loan. (The VA paid for it directly, under a vocational rehabilitation program.)

Again, thanks for reading this, and any help is greatly appreciated.

[jadams]

I wish you luck with this, but it's going to be an uphill battle. I truly hope you can find a way to do it, because I think the private student loan industry has quite the racket going on.

I looked into some of the precedent with private student loans similar to yours that are marketed to pay for living expenses while you study, aren't certified by the school, and are paid directly to the student. I'll dig through my notes and see if I can get some of the references for you...

The precedent puts it in the same spot as a federal government loan.

I hope someone eventually fights all the way that private loans lack the same protections that government loans have and shouldn't be treated the same.

The government loans are thought to be "fair" and thus undischargable. For example my private loans have 12-months forbearance in the entire contract, no other deferments, and realistically can't be refinanced or consolidated.

That's a completely different ball game than a Stafford loan that can easily have more than 5 years of forbearance, lots of deferment options, and then has income contingent repayment options.

[biotechsolution]

You would have file an AP to determine the dischargeability. There really is no 'shortcut'. But you shouldn't be liable for there attorney's fees.

[Globu]

Thanks for the answers jadams and biotechsolution.

It definitely is a solid racket. Like I imagine close to 100% of people similarly situated (in terms of the legal issue), I just don't have the means to take it on -- my bankruptcy filing attorney informs me that she can refer me to someone who can take it on, for a hefty retainer. Now I see why this sort of thing doesn't appear to have sustained much challenge.

So, it looks like I'm going to have to eat it and accept the ballooning default KeyBank will impose on the bar loan (the contract allows them to declare me in default if I sneeze wrong -- "if, in [their] judgment, there is a significant lessening of my ability to repay [the loan]" or if I get "any" payment in a day late -- which I imagine is industry-standard, and in any case they can do it over the bankruptcy filing). (

What a nightmare.

Well, thanks for the advice, guys. I'll post if there is some unexpected twist or a some kind of miracle.

[sabotabby]

Oh man. I posted about this in 2006 (kind of random that I'm here today and read your post). I researched the hell out of this issue and never got a good answer to the dischargeability question (and I used to clerk for a bankruptcy judge, so I'm not totally clueless on bankruptcy-related issues).

My situation ended up being even more screwed up than non student loans masquerading as student loans. I was served with papers saying the bar loan people were suing me in state court, after I got my discharge. When I tried to look up the case in the local court system, there was nothing there -- no record of any actions against me. So I figured this was another overly aggressive collection tactic and blew it off.

A while later (weeks, months -- I don't remember) I found out my wages were being garnished for this crap. It turns out they did sue me, but the court clerk spelled my name incorrectly when entering the case information, so nothing came up when I searched for myself. I couldn't search by case number because there wasn't one on the papers I was served, which spelled my name correctly. I think having my wages garnished was just about the most embarrassing thing, ever.

Long story short (too late!), I ended up hiring a civil attorney to negotiate with these guys for me because I was too mad, settling, and paying most of the damn thing.

This probably isn't helpful at all, but I can say that I feel your pain. These people were much more aggressive than I thought they would be. I wish I would've filed a complaint to determine dischargeability, and I would've done it pro se -- remarkably, I couldn't find a bankruptcy attorney who would return my calls or was interested in the issue, which I think is a good one. I was way too stubborn to just pay the thing, and even if the issue wasn't resolved in my favor (and I really thought it could go either way), at least the thing wouldn't have come back to haunt me after my discharge.

[Globu]

@sabotabby:

Wow. That's harsh. I can imagine how mad you were. I'm angry as hell about it just at the abstract level -- they're pulling this on a lot of people.

On that side of things, I'm not sure how routine it is (my passion and focus in law school was crim defense), but the Precautionary Notice of Objection to Discharge of Student Loan and Notice of Intent to Proceed With Collection Following Discharge and Closure of This Bankruptcy Proceeding now has a decidedly more ominous tone to it. If I understand this correctly then, I'm going to be facing them in court one way or another.

I haven't passed the bar or worked in the field, and have been out of law school and unemployed for 3 years now -- family contingencies, illness, hard luck, and all that -- so I don't know my way around courtroom procedure. Is it really that much of a nasty minefield to take this on pro se?

Thanks for piping up, sabotabby. I appreciate hearing from someone else who's had this same issue to face. I was genuinely surprised they'd be able to get away with classifying bar loans and other sorts of professional certification life expenses loans as loans "incurred for Debtor to attend an educational institution," and it seems we're stuck with it.