The remainder part of this particular article centers on examining every one of the three sandwich-sections of 523 (a)(8) in the context of personal student loan debts. The original element of so it three-region post is targeted on Point 523 (a)(8)(A)(i). Next and you may third avenues mention Section 523 (a)(8)(A)(ii) and you can https://cashlandloans.net/installment-loans-va/ Area 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.
Those two differences mean that individual figuratively speaking try excepted regarding discharge in second clause regarding AI (and never the original condition) if: (1) the borrowed funds was developed not as much as a “loan program” and you will (2) the application are “funded” from the a low-funds establishment. See in re also Hammarstrom 95 B.R. 160, 165 (Bankr.N.D.Cal. 1989) (“[f]irst, the mortgage have to be produced pursuant so you can an excellent “program” for delivering instructional funds. Second, you to definitely program need to be “funded” at least in part from the a non-profit company”).
The latest Case of bankruptcy Court figured the fresh non-funds organization financed the loan program because bought every one of the brand new notes in program on brand new bank and you can alleviated the lending company from the duties and you can financial obligation within the same
Bankruptcy proceeding Courts often find your very first element are met if the a non-finances entity belongs to an application you to encourages this new beginner loan to the borrower. Eg, inside the Hemar Services Corp., Inc. v. Pilcher 149 B.Roentgen. 595 (Bankr.9th Cir. 1993), the latest debtor acquired college loans away from that loan program financed by multiple non-funds as well as-profit organizations. Come across Pilcher 149 B.Roentgen. from the 598. The initial function is very simple in order to satisfy and you may, consequently, Bankruptcy Courts often neglect or do not get to know the first prong of AI investigation.
Looking at next ability, the newest Bankruptcy proceeding Court into the When you look at the lso are Hammarstrom held that name “funded” means a non-profit place one “performs any meaningful area in the getting financing” toward loan program. For the lso are Hammarstrom, 95 B.Roentgen. in the 165. Case of bankruptcy Process of law continuously rely on From inside the re Hammarstrom because it are among the first personal bankruptcy instances in order to describe the definition of “funded” once the utilized in the second condition regarding AI. Certain Personal bankruptcy Courts keeps stored that a non-funds business money financing system in the event it commands the latest cards produced underneath the financing program from a personal, industrial bank.
This new Case of bankruptcy Court discovered that the collector came across the first element while the a low-finances entity which had been a member of that loan program you to considering educational fund to students searching for financial assistance
Such as, inside In the re also Hammarstrom, the brand new low-finances organization and you can a private financial inserted on a binding agreement wherein the non-public lender manage play the newest notes towards the debtors and loan money right to the young. Following financial paid the borrowed funds continues, the fresh low-funds entity carry out instantaneously purchase the notes about bank and you can manage end up being a creditor of your own debtors. The fresh Bankruptcy Court learned that the mortgage system design produced the fresh new industrial financial little more than an agent to your non-finances entity to simply help it improve loans for post-secondary studies.