The remainder part of this shotherwiset article focuses primarily on checking out all of the 3 sub-areas of 523 (a)(8) relating to individual education loan costs. The first part of so it three-area blog post focuses on Section 523 (a)(8)(A)(i). The second and you may third places speak about Point 523 (a)(8)(A)(ii) and Section 523 (a)(8)(B), respectively.
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.
These variations mean that personal student education loans try excepted of discharge within the second clause away from AI (rather than the first term) if: (1) the mortgage was created lower than an excellent “financing system” and you will (2) the application form was “funded” because of the a non-funds organization. Find in lso are Hammarstrom 95 B.R. 160, 165 (Bankr.Letter.D.Cal. 1989) (“[f]irst, the borrowed funds should be generated pursuant to an effective “program” to possess getting informative loans. 2nd, you to definitely program should be “funded” at the very least to some extent of the a non-profit business”).
Personal bankruptcy Courts usually see that earliest function is met if the a non-funds organization falls under a program that facilitates the latest student mortgage toward debtor. Such as for example, into the Hemar Provider Corp., Inc. v. Pilcher 149 B.Roentgen. 595 (Bankr.9th Cir. 1993), the debtor acquired student loans of that loan system financed by the numerous low-finances and for-cash entities. Select Pilcher 149 B.R. on 598. The first element is very easy to meet and you may, this means that, Case of bankruptcy Courts will overlook otherwise don’t familiarize yourself with the initial prong of your AI data.
Looking at the second function, new Case of bankruptcy Judge within the In lso are Hammarstrom stored that the term “funded” setting a non-funds facilities that “takes on people meaningful part from inside the bringing funds” with the loan program. Into the re also Hammarstrom, 95 B.Roentgen. at the 165. installment loans Texas Personal bankruptcy Process of law constantly believe in Within the re Hammarstrom because it is actually one of the first personal bankruptcy times to describe the phrase “funded” while the used in the second clause out-of AI. Particular Case of bankruptcy Process of law has stored that a low-profit establishment money that loan system when it commands the fresh new notes produced underneath the financing system of a personal, industrial lender.
Including, in Into the re also Hammarstrom, the non-finances organization and you can a personal lender joined toward an agreement for which the private lender carry out perform the fresh new notes to your debtors and mortgage money directly to the students. Following bank paid the mortgage continues, the newest low-profit organization perform instantly choose the notes on lender and you may create be a collector of your own debtors. The newest Personal bankruptcy Court found that the loan system build produced the fresh industrial bank little more than a realtor toward non-finances entity to simply help they get better finance getting blog post-supplementary knowledge.