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Bankruptcy May Be Your Option

Bankruptcy ruling could affect thousands

It is not unusual for people seeking a higher degree to take out student loans to help finance their education. However, if a person in Oklahoma with such loans faces financial struggles later on and decides to seek bankruptcy protection, student loans are typically not dischargeable. Fortunately for some, a recent ruling in one case could affect how certain loans related to education are treated.

The case involved a woman who took out what is known as a "bar loan" worth $15,000 while studying for the bar. Ultimately unable to pass the bar, she found a job as an administrative assistant that paid $50,000 per year, but she struggled with $300,000 in student loans. Although she made payments on the loan until June 2012, she ultimately filed for bankruptcy in 2014.

While student loans normally cannot be discharged as part of bankruptcy proceedings, she argued that this loan did not meet the standard of an "educational benefit" described in U.S. Bankruptcy Code. Citibank disagreed, arguing it was an educational benefit because it a condition of the loan was that she was a law student. The judge in the case recently ruled in the favor of the young woman, determining that even though the underwriters made attending law school a condition of the loan, it was not an educational benefit. Some say that the ruling could affect thousands of others who are struggling as a result of this type of loan.

This ruling relates only to this sort of private loan, not student loans that are ensured by the government. However, this ruling could ultimately impact other who are struggling with private loans used for their education. For those in Oklahoma who feel that bankruptcy may be the best path for them, a conversation with an experienced attorney could help them better understand their options.

Source: ABC News, "Judge's Ruling on Law School Grad's Debt Could Signal 'Seismic' Shift in Loan Practices", Susanna Kim, March 28, 2016

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