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Student Loan or Not A Student Loan?

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  • Student Loan or Not A Student Loan?

    I took out loans to pay for most of law school. Upon graduating law school it is common for students to take out what is called a "bar loan." A bar loan typically is $15,000 to get you from graduation, through the bar exam, and to the start of your first legal job.

    From my reading of this portion of the Code and other related material, I would conclude that a bar loan IS dischargeable under Chapter 7 bankruptcy because the proceeds of such a loan are not paid to a qualified higher education expense.

    Does anyone have anything thoughts on this?

    My thinking is based upon this:

    1. Section 523(a)(8)(B) of the Bankruptcy Code (as revised effective 10/17/05) excepts from discharge “any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986; incurred by a debtor who is an individual.”

    2. Section 221(d)(1) of the Internal Revenue Service code defines “Qualified Education Loan” to mean “any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses. . .”

    3. Section 221(d)(2) of the IRS Code defines “qualified higher education expenses” to mean “the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, 20 U.S.C. 108711) at an eligible education institution. . . .”

    4. Section 108711 of the Higher Education Action of 1965, as amended (20 U.S.C. 108711) defines (in relevant part) the term “cost of attendance to include:
    (1) tuition and fees normally assessed a student carrying the same academic workload as determined by the institution, and including costs for rental or purchase of any equipment, materials, or supplies required of all students in the same course of study;
    (2) an allowance for books, supplies, transportation, and miscellaneous personal expenses, including a reasonable allowance for the documented rental or purchase of a personal computer, for a student attending the institution on at least a half-time basis, as determined by the institution . . .”

  • #2
    Yes, you are correct; also, on the tax side, you cannot deduct bar review courses as an educational benefit on your taxes.

    However, that is not the end of the story. You still need to run through the standard objection to discharge analysis under 523(a)(2)


    • #3
      Originally posted by HHM View Post
      However, that is not the end of the story. You still need to run through the standard objection to discharge analysis under 523(a)(2)
      Just gotta say it - my thoughts exactly and what a way to pass the "character & fitness" requirement for any State Bar - take a loan after law school to help you live with no intention to repay. Wonderful. I don't represent creditors but would love to on this one.

      There, I feel better. Now I am going to sleep.



      • #4
        Just in case the OP is looking to file bk because of a medical catastrophe, or some other unintended personal disaster, I just want to say "Welcome to the Forum."
        There are two secrets for success in life:
        1.) Never tell everything you know.


        • #5
          ...take a loan after law school to help you live with no intention to repay
          Am I missing something? The bar loan was taken years ago, I was employed by a large NY law firm, then was downsized in the recession, and I filed for bankruptcy protection recently (9 months after being laid off). How is it that that YOU would conclude there was no intention to pay? Fully two years have passed since the bar loan was issued in the spring of 2009.

          I am a little taken aback here. I was asking a simple question and Des. appears to be attacking my character, suggesting that she personally would like to represent my creditor in this case and further suggesting that I would likely have difficulty passing a "character and fitness" review. Again, Des. how could you possibly conclude there was an initial intent to avoid payment with the information I provided?

          I'm not sure if you're an attorney, Des. or if this is just what I should expect on this website. However, if you are an attorney your response is disappointing not because it doesn't glowingly provide me with a clean and optimistic opinion, but rather because it fails to recognize that you know that you don't know all the facts and yet you choose to attack me. I truly don't understand it.
          Last edited by DAE; 05-14-2011, 10:50 AM.


          • #6
            The above attack on the OP was inappropriate. The whole point of this forum is so that folks who are considering or undergoing the bankruptcy process can educate themselves about the law and plan accordingly. Insulting or attacking someone because of the kind of debt that they acquired, or their reasons for being in the financial position that they find themselves in, is the sort of thing that I would expect to see from the 14-year-olds at Yahoo Answers, not on a site like this.

            BTW, anyone who thinks that having a law degree is a ticket to the "big bucks" these days needs to actually research the issue, talk to some recent law grads, etc, before they shoot their mouth off. The supply of attorneys in this country exceeds the demand, and law schools keep cranking out new grads, largely because they have no incentive not to do so.

            To the OP: you are technically correct as to the status of your bar loan. However, if you took out this bar loan from the same lender from whom you received your other student loans for law school, it's going to be difficult to separate out the bar loan from the rest of the loans. And the lender will fight you all the way. I think that you are correct in your reading of the law, but get ready for a fight, that's all I'm saying.


            • #7
              Sorry if I have offended. You, as an attorney, should have known to give information that would clarify what otherwise looks like a "lawyer" fresh out of law school trying to find a way to shaft his/her responsibilities. What is one (who has pretty much seen it all as it relates to bk issues) to expect when one reads a post that is replete with innuendo that all the poster is seeking is information on whether or not when he/she graduates law school and then takes out a "bar" loan that loan can be discharged. Now, had you give the details:

              1. Graduated years ago
              2. Just lost job with big (presumably high paying) law firm
              3. Can't find new job
              4. Unable to pay

              That would be different.

              Come on Counselor. You know, "garbage in-garbage out". Give us the facts of your situation and maybe we won't jump to a conclusion that you are trying to game the system.



              • #8
                Keith, thank you. And thank you to debee -- and to HHM who, while providing me information on possible opposition to my discharge, didn't suggest he knew more about my character than he does.

                Keith, the bar loan was issued by Citi Student Loans in the spring of 2009, has an entirely separate loan number, and was issued months after my final disbursement of qualified educational loans in Dec. 2008. What prompted this question (because it never occurred to me that a bar loan would be treated differently than other student loans) was that while visiting Citi's student loan website, that one loan...the bar inaccessible while the other loan is freely accessible. This led me to think that Citi might be looking at them differently. So I called Citi and asked the loan specialist whether it was Citi's general position that bar loans are discharged in bankruptcy (the assumption being that this is not their first rodeo with bar loans and bankruptcy). The specialist needed to consult with someone off line and when he returned to the phone he said he wasn't able to answer my question. Perhaps he couldn't find the answer or perhaps someone asked him not to entertain the question, I don't know.

                But again...thank you for your response.
                Last edited by DAE; 05-14-2011, 11:38 AM.


                • #9
                  You, as an attorney, should have known to give information that would clarify what otherwise looks like a "lawyer" fresh out of law school trying to find a way to shaft his/her responsibilities.
                  No, Des. don't turn this on me and suggest that if only I had been more upfront. I asked a simple question and you went nuts. Given the information I provided in the first post, there is NO way you can conclude whether I am 3 months out of school or 5 years. It was YOU that concluded I was only 3 months out of school (why not conclude it was 5 years?) If assuming one vs. the other makes a difference to your analysis you should have asked. When an attorney makes assumptions that help him arrive at a conclusion, he qualifies his opinion based on the assumptions he's making. That you would try to hold me responsible for your assumptions is ridiculous. So back up and take a breath before you attack someone. For instance, HHM provided a simple and to the point response...suggesting that the loan is dischargeable, but that I might look at opposition to such discharge. HHM didn't suggest that I had a character flaw, he just coldly provided me an answer and left the personal stuff aside.

                  Frankly, the fact that you would try to back away from your initial response by suggesting your misunderstanding, your reading of "innuendo", and your lack of restraint is MY fault underscores a lack of integrity. Seriously, if you have an axe to grind, please do it elsewhere.
                  Last edited by DAE; 05-14-2011, 11:52 AM.


                  • #10
                    Hey DAE,

                    Just want to welcome you to the forum. Des is one of the most helpful people on this forum and normally, you certainly would have been met with a different kind of answer. It's actually very unusual for him or anyone to take on a negative tone to anyone here. This is an extraordinarily compassionate and supportive place and sorry if you got off to a bad start.

                    Forgive us this once and stick around--- and you will see.

                    Oh... and my dh is an attorney. That thing about the "big bucks".... yeah right. Not when lawyers are a dime a dozen, when real estate isn't moving, and when people can't even afford to get divorced.

                    Keep On Smilin'


                    • #11
                      Originally posted by keepsmiling View Post
                      Oh... and my dh is an attorney. That thing about the "big bucks".... yeah right. Not when lawyers are a dime a dozen, when real estate isn't moving, and when people can't even afford to get divorced.
                      I know a real estate attorney that is moonlighting as a singer and sound technician for a Blues Band....

                      DAE: welcome to the forum, and I also am sorry that you got off to a bad start.

                      Good luck to you!
                      "To go bravely forward is to invite a miracle."

                      "Worry is the darkroom where negatives are formed."


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