Private Student Loans in Bankruptcy

The 2005 amendments to the Bankruptcy Code expanded the protection of student loan lenders to include private student loans. Thus no student loan is dischargeable in bankruptcy unless the court finds, in a specially filed adversary proceeding, that repayment of the loan would impose an "undue hardship" on the debtor and the debtor's dependents.

Amended Bankruptcy Code § 523(a)(8)(B) adopts the IRS definition of a qualified education loan found in 26 U.S.C. 221(d).

(d) Definitions
For purposes of this section -
(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).

(2) Qualified higher education expenses
The term "qualified higher education expenses" means the cost
of attendance (as defined in section 472 of the Higher Education
Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before the
date of the enactment of this Act) at an eligible educational
institution, reduced by the sum of -
(A) the amount excluded from gross income under section 127,
135, 529, or 530 by reason of such expenses, and
(B) the amount of any scholarship, allowance, or payment
described in section 25A(g)(2). For purposes of the preceding sentence, the term "eligible
educational institution" has the same meaning given such term by
section 25A(f)(2), except that such term shall also include an
institution conducting an internship or residency program leading
to a degree or certificate awarded by an institution of higher
education, a hospital, or a health care facility which offers
postgraduate training.
(3) Eligible student
The term "eligible student" has the meaning given such term by
section 25A(b)(3).
(4) Dependent
The term "dependent" has the meaning given such term by section
152.

Private Student Loans Not Dischargeable