Carl J. Nelson Law,  P.C.

Discharging Student Loan Debt (U.S. Appeals Court Decision)

An important recent decision in the Second Circuit (the federal appellate court comprising the judicial districts within New York, Connecticut and Vermont) took up the important issue of a bankruptcy debtor’s ability to discharge private (non-governmental, for-profit) student loans.


A major benefit to filing a bankruptcy is the discharge.  A discharge is a court-ordered release of personal liability on a debt or debts.  The Bankruptcy Code provides a broad discharge for scheduled debts, however there are a number of exceptions to the discharges provided for by chapter 7 and 13 of the Code. Due to the ever-increasing debt burden caused by skyrocketing educational costs, student loans are an important issue in many insolvency cases.  Student loans are a type of debt generally ineligible for a bankruptcy discharge, absent an undue hardship.

The Case, In re: Hilal K. Homaidan

In the Second Circuit case, In Re: Hilal K. Homaidan, the Court held that private students loans do not enjoy the same broad discharge exemption afforded to governmental and non-profit student loan creditors. Only one portion of the bankruptcy student-loan exception applies to private student loans: loans made to individuals for eligible schools and for certain qualified expenses.

While private student-loan debt still maintains a preferential status under the Bankruptcy Code versus–for example–credit card debt, Homaidan provides an important limitation of the student-loan discharge exception related to private student loans.


In re: Hilal K. Homaidan

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