“Bar Study” Loan Determined to be Dischargeable

Not to sing my own praises, but I’m quite proud of this one: On October 3, 2012, Judge Carlson in San Francisco issued an order in the adversary proceeding, McGinnis v. Citibank (Bankr. N.D. Cal, Case No. 12-03111), where I represented the Debtor/Plaintiff.

The Debtor is a relatively newly admitted attorney who filed a Chapter 13 case. Among her debt s was approximately $15, 000 in a “bar study loan.” Taking out bar study loans is quite common among lawyers-to-be; such loans cover their bar exam tutoring and living expenses while they’re preparing and awaiting their results. The lender filed a claim in the Debtor’s Chapter 13 case, claiming the loan was a “student loan” and therefore not subject to discharge.

The Debtor initiated the adversary proceeding, claiming that the loan was not a “student loan” as defined by law. It was not intended to cover the costs of attending a Title IV institution; Indeed, there was no “institution” at all; she was engaged in self-study and had tutoring from private “bar prep” companies. Moreover, she was pursuing a professional license, not an academic degree.

Though it had adequate notice, the lender failed to respond to the Debtor’s complaint. Judge Carlson’s Order on October 3 was therefore a “default judgment” and so has little if any value as precedent.

However, I think there’s a lesson here: If you have a bar study loan and are filing a bankruptcy case, be sure to talk to your lawyer about whether or not that’s really a student loan. Also, if you’re in a non-law profession but still took out some kind of loan while you studied for a professional license, that debt may not be a student loan, either.

Unfortunately, under current law, there’s not much I or any other debtors’ attorney can do about student loans. However, there are things at the margins, such as this, where we can make significant inroads.

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