October ABI Journal Article Proposes Redefining Student Loans to Assist Struggling Debtors Seeking Ch. 7 Relief

October ABI Journal Article Proposes Redefining Student Loans to Assist Struggling Debtors Seeking Ch. 7 Relief

Alexandria, Va. — An article in the October edition of the ABI Journal proposes that adding a definition within the Bankruptcy Code that classifies student loans as business expenses could help some struggling debtors potentially qualify for chapter 7 relief. Debt that has more than one purpose or is the result of commingling of personal and business expense can be characterized as a business expense and subject to discharge, according to Tami Wells Thomas of The Wells Thomas Law Firm LLC (Conyers, Ga.) in her article "Student Loan Debts as Non-Consumer Debts – or Not."


Thomas found that the Code does not explicitly state how to classify student loans, leaving courts to establish guidelines and tests that have been inconsistent in determining whether student loans are considered “consumer” or “non-consumer” debt.  The Bankruptcy Code defines “consumer debt” as debt that has been “incurred by an individual primarily for a personal, family, or household purpose.” Given the discrepancies in interpretation by the courts, Thomas writes that classifying student debt would assist a class of debtors who would otherwise not qualify for chapter 7 and would not have been successful in chapter 13. “In the case of many professionals, classifying student loan debt as non-consumer debt may be the only way to qualify for chapter 7,” she writes.


She proposes an amendment that “A loan acquired for the purpose of obtaining a professional degree from an institution of higher education, that is required and necessary to practice in that profession, is not consumer debt.”


Bankruptcy courts would also benefit by having a clearer definition of non-consumer debt, including having a better direction on the issue of student loan debt as a consumer or non-consumer debt, according to Thomas. “The public policy would benefit, as a change to the Bankruptcy Code would statutorily further bankruptcy's goal of permitting a fresh start to qualifying individuals and increase efficiency by leaving one less matter open to interpretation,” according to Thomas.


To obtain a copy of “Student Loan Debts as Non-Consumer Debts – or Not,” published in the October issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at [email protected].


ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 12,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abi.org/education-events.