Bankrupt Student Can Discharge Debt Because It Wasn’t a Loan

By Diane Davis

Nov. 7 — A financial agreement between a student and an educational institution isn’t a student loan and, as a result, the student can discharge the debt in her bankruptcy case ( D’Youville Coll. v. Tucker (In re Tucker) , 2016 BL 364391, Bankr. W.D.N.Y., No. 16-1001 K, 11/1/16 ).

Judge Michael J. Kaplan of the U.S. Bankruptcy Court for the Western District of New York Nov. 1 concluded that because the debt wasn’t “an education benefit overpayment or a loan,” the exception to discharge under Bankruptcy Code Section 523(a)(8)(A)(ii) doesn’t apply.

The court granted summary judgment to debtor Jetaun Tucker and discharged her debt to D’Youville College in Buffalo, N.Y.

The financial agreement entered into between the parties was “no more than an agreement to pay for tuition, fees and other registration costs (whatever they turn out to be), at some unspecified future time, and not for an ‘educational benefit overpayment or loan’ as contemplated in §523(a)(8)(A)(i), the court said.

This case is similar to two other recent cases in the Western District of New York, with the exception that in this one, there was no promissory note signed by the debtor, the court said, citing In re Hardy, 535 B.R. 528 (Bankr. W.D.N.Y. 2015), but see In re Girdlestone, 525 B.R. 208 (Bankr. W.D.N.Y. 2015), where an obligation to pay qualified as an educational loan.

Exceptions to discharge under the Bankruptcy Code are construed narrowly and a creditor must prove by a preponderance of the evidence that its claim falls within one of those exceptions, the court said.

Not a Loan

D’Youville argued that the financial agreement entered into between the parties provided all the required terms of a loan and met the conditions of Cazenovia College v. Renshaw, 222 F.3d 82 (2d Cir. 2000).

The court disagreed because it didn’t find a specific amount due in the financial agreement. The agreement contained a monthly interest provision and indicated that an adjustment would be made for financial aid received at a later time. The financial agreement between the parties was “nothing more than a running account,” the court said.

Given the fact that no funds were received by the debtor, Section 523(a)(8)(A)(ii) doesn’t apply, the court said.

Thomas Denny, Law Office of Thomas Denny, Amherst, N.Y., represented debtor Jetaun Tucker; R. Thomas Burgasser, North Tonawanda, N.Y., represented plaintiff D’Youville College; Chapter 7 trustee John H. Ring, III, Orchard Park, N.Y.

To contact the reporter on this story: Diane Davis in Washington, D.C. at

To contact the editor responsible for this story: Jay Horowitz at

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