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Quote of the Day - One can pay back the loan of gold, but one dies forever in debt to those who are kind. - Malayan Proverb
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Grading Law School Loan Bankruptcy Discharges

If you used loans to get through law school and have had a tough time paying them back, beware.  You can't discharge them in bankruptcy.  This new ruling isn't news - we've known for a while now that you can't get out of student loans.  Why, then, is it here?  Well, this case presented a twist not covered in the previous law.

Our law student's loans here were guaranteed by The Education Resources Institute, a non-profit corporation, who according to its website, "offers loans based on good credit, with no income limitations, for elementary and secondary, undergraduate, graduate and continuing education studies."  Former law student Kelli O'Brien borrowed money from Key Bank, and TERI guaranteed that loan.

O'Brien then defaulted on her student loan, and TERI paid it back to the bank under the terms of the guarantee.  O'Brien sought to avoid paying TERI by filing bankruptcy, arguing that the statute disallowing the discharge of student loans didn't apply because this debt to the guarantor was not the actual student loan.

Nice try, but no go

Even though TERI didn't pay the money to the law school for O'Brien's education, the Second Circuit ruled that it constituted a "meaningful contribution" under the terms of the statute, and thus could not be discharged.  Maybe it's worth a cert petition, because it's a legal fiction since the money from TERI didn't go to the law school, it went to the bank, even though the Second Circuit saw it differently.

So far, it's an A+ for creativity, F for effectiveness.  We'll see if this case goes any further. 

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Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Wednesday, August 17, 2005 at 09:27 Comments Closed (0) |
 
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