The first section of this around three-region post focuses on Area 523 (a)(8)(A)(i). Next and you can third avenues discuss Point 523 (a)(8)(A)(ii) and you will Area 523 (a)(8)(B), correspondingly.
Section 523 (a)(8)(A)(i) (hereinafter “AI”) is the first sub-section of Section 523 (a)(8). The text of AI states that a debt incurred by an “an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or non-profit institution” is non-dischargeable.
The second use of the word “or” separates AI 
into two clauses. There are two notable distinctions between the two clauses. The first distinction is that the first clause is limited to “loans,” whereas “the second clause of AI concerns loan programs, [not] particular loans.” In re O’Brien 318 B.R. 258, 262 (S.D.N.Y. 2004) (emphasis added) (citations omitted). The other notable difference is that the first clause is limited to loans by a “governmental unit,” and the second clause includes governmental units and non-profit institutions.
Find in re also Hammarstrom 95 B.R. 160, 165 (Bankr.Letter.D.Cal. 1989) (“[f]irst, the borrowed funds must be produced pursuant to help you a “program” to possess taking educational money. Next, that program need to be “funded” no less than partly by the a low-finances business”).
Bankruptcy Process of law usually see the first ability is actually satisfied when the a non-funds entity is part of a course you to definitely facilitates this new pupil mortgage with the debtor. Such as, for the Hemar Service Corp., Inc. v. Pilcher 149 B.Roentgen. 595 (Bankr.9th Cir. 1993), the fresh borrower received student loans from financing system financed of the multiple non-finances and for-profit organizations. The brand new Bankruptcy proceeding Courtroom found that the brand new creditor found the original ability because the a low-earnings entity which was a person in a loan system one provided academic funds to help you pupils looking for financial help. Come across Pilcher 149 B.Roentgen. in the 598. The initial feature is very simple in order to satisfy and you may, as a result, Personal bankruptcy Process of law commonly neglect otherwise do not get acquainted with the original prong of your AI data.
Turning to another ability, the fresh Case of bankruptcy Judge in For the re Hammarstrom kept the identity “funded” means a non-profit facilities that “plays any significant part when you look at the providing money” into loan system. When you look at the re Hammarstrom, 95 B.Roentgen. at 165. Personal bankruptcy Process of law constantly rely on From inside the re also Hammarstrom because it was among the first personal bankruptcy times so you’re able to establish the definition of “funded” since utilized in another term from AI. Specific Bankruptcy proceeding Courts provides kept you to a low-cash business money a loan program if it requests this new notes generated according to the financing program regarding an exclusive, commercial bank.
For-instance, within the In the re Hammarstrom, the newest non-finances organization and you may a personal bank registered for the an agreement which the private bank would play the newest cards into debtors and you can loan money straight to the students. Following financial paid the borrowed funds proceeds, the latest low-money organization do instantly choose the cards about lender and you can carry out end up being a collector of debtors. The newest Bankruptcy proceeding Court learned that the mortgage system structure made the newest industrial financial nothing more than a realtor towards non-cash organization to greatly help it improve fund to possess post-supplementary studies. Brand new Bankruptcy Courtroom determined that the latest non-earnings organization funded the borrowed funds system because ordered all of brand new cards in program about brand-new lender and you can treated the lending company from its requirements and personal debt beneath the exact same.