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Scura, Wigfield, Heyer, Stevens & Cammarota Blog

Once a Student Loan, Always a Student Loan

[fa icon="clock-o"] February 4, 2013 [fa icon="user"] David L. Stevens [fa icon="folder-open'] Bankruptcy, Debt Management

person_holding_student_loan_signCreative debtors have been trying to beat the system for as long as there has been a system to beat. And when those debtors are young, educated, and over indebted, the schemes can get pretty clever. Once such idea that I have heard many people consider is paying off student loan debt - which generally does not go away in a bankruptcy - with credit cards or another type of loan that usually is dischargeable in bankruptcy.

Drafters of Bankruptcy Code One Step Ahead

Well, I am sorry to report that the drafters of the Bankruptcy Code (likely with some help of financial institution lobbyists) are one step ahead. The Bankruptcy code section 523(a)(8)(B) incorporates the IRS definition of student loan under Internal Revenue Code 221(d)(1). That section states that a qualified education loan includes the refinance of that loan. Hence, the debt incurred by paying the student loan off with a credit card is not dischargeable in bankruptcy. Of course, it may be unlikely that the new creditor catches on to the fact that the previous debt was a student loan or that the new creditor will do anything about it.

If you have questions regarding bankruptcy or are struggling with overwhelming debt, contact us today for a free consultation with a consumer debt attorney.

Posted by David L. Stevens

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