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Bankruptcy Appeal Decision Supports Not All Loans Are An Educational Benefit for Bankruptcy

By on May 1, 2017

In a court document just out, the Bankruptcy Appellate Panel (BAP) just provide a little more clarification to some student loans not protected from discharge in bankruptcy. The case was Kashikar v. Turnstile Capital Management.

According to attorney Christine Kingston in California, “This case will go back to our local Bankruptcy Court to rule in the remaining issues and I’ll likely be spearheading the briefs for this client.”

This decision is important because “The BAP clarified their definition of “funds received” and stated they carved out a niche for this through the Christoff case where that borrower only received tuition credits and no funds were transferred or received on or behalf of the student. So, whether the school received the funds directly, or whether funds flowed through the student is no longer relevant to the “funds received” part of the discussion.

The Kashikar case focuses on “educational benefit” as stated in the Bankruptcy Code under 11 U.S.C. 523(a)(8)(A)(ii). The Court held that a “loan” is not an “educational benefit” within the meaning of this Section, said Kingston.”

I completely understand that much of what is included in this court decision is technical stuff but it is an important step to witness as the BAP identifies and clarifies issues that can lead to further discharge of bankruptcy debt.

For example, the BAP opinion makes it clear that is a school extended credit to a student, that is not protected from bankruptcy discharge. There have been a number of especially for-profit schools that have pulled this extension of credit scheme and burdened student with debt that appears to be able to be eliminated in some bankruptcy courts.

Progress for debtors often moves in tiny steps and the Kashikar case is one of those slightly bigger steps that helps people move towards hope and solutions for some student loans.

You can read the case opinion here.


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About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

2 Comments

  1. jlarson13

    May 2, 2017 at 10:52 am

    What kind of use is considered “non-educational?” I have half my school loans in private loans, that I never used for tuition at all. They were for my mortgage payment and car payment. (I was a non-traditional student in my 30s.) Would I have to go back and get bank statements from 5-10 years ago to prove this? Looking for some clarification on exactly what approach these bankruptcy folks are taking to get their loans dismissed, as I’m in a similar situation.

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