The rest part of this shotherwiset article is targeted on evaluating each of the three sandwich-parts of 523 (a)(8) in the context of personal education loan expenses. The initial element of that it around three-part post centers on Part 523 (a)(8)(A)(i). Another and 3rd segments mention Area 523 (a)(8)(A)(ii) and you can 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.
Both of these variations indicate that individual student loans is actually excepted regarding release underneath the 2nd term of AI (and never the original term) if: (1) the borrowed funds was developed below good “financing program” and you may (2) the application is actually “funded” of the a non-money place. Find in re also Hammarstrom 95 B.Roentgen. 160, 165 (Bankr.N.D.Cal. 1989) (“[f]irst, the loan must be generated pursuant so you’re able to good “program” having delivering educational fund. 2nd, you to definitely program need to be “funded” at least in part from the a non-earnings company”).
Brand new Personal bankruptcy Court figured the non-profit organization financed the mortgage program as it ordered each of the latest cards underneath the program throughout the original financial and you can alleviated the lending company from its commitments and you can personal debt in same
Case of bankruptcy Courts often find that the earliest element is found if a non-earnings organization belongs to a program you to definitely facilitates the newest beginner mortgage on debtor. Eg, into the Hemar Service Corp., Inc. v. Pilcher 149 B.R. 595 (Bankr.9th Cir. 1993), new debtor acquired student education loans off a loan system financed by the multiple low-cash and also for-cash agencies. Find Pilcher 149 B.R. within 598. The initial ability is very simple meet up with and you will, thus, Bankruptcy proceeding Courts often overlook otherwise don’t learn the initial prong of your AI research.
Looking at the second element, the latest Bankruptcy Court for the When you look at the re also Hammarstrom held that term “funded” setting a low-profit place one to “plays one meaningful region when you look at the getting fund” towards mortgage program. In re also Hammarstrom, 95 B.Roentgen. during the 165. Bankruptcy proceeding Process of law consistently have confidence in In the re Hammarstrom because are one of the first personal bankruptcy instances to help you explain the phrase “funded” due to the fact found in another clause out of AI. Specific Case of bankruptcy Courts has actually held that a low-money facilities money a loan program whether or not it requests the fresh notes made in mortgage program from an exclusive, commercial financial.
New Bankruptcy Judge learned that this new collector found the initial element because the a non-earnings organization which was a person in financing system you to definitely considering significant link educational finance to help you college students searching for financial assistance
For-instance, inside the When you look at the lso are Hammarstrom, this new low-earnings entity and you will a private financial joined towards the a binding agreement in which the non-public lender create play the latest notes to the debtors and you can financing currency right to the young. Adopting the lender paid the loan continues, this new non-profit organization would instantaneously choose the cards on the financial and you will would be a creditor of the debtors. The latest Bankruptcy proceeding Courtroom discovered that the loan program construction generated brand new commercial bank nothing more than a real estate agent toward non-finances organization to greatly help they progress money to have post-second education.