2808.01.06.06  BANKRUPTCY

1.	Chapter 7, Defense and Direct

References:  NACUBO/SLCP p. 52; NASFAA Encyclopedia 5.9.5; Outline of 
Chapter 7 Bankruptcy

Petitions filed on or after October 1, 1979, are governed by the Bankruptcy 
Reform Act of 1978 which makes educational loans owed to a governmental 
unit nondischargeable unless the loan(s) first became due five years before the 
filing or if excepting the loan(s) from discharge would result in 
undue hardship for the borrower.  Provisions of the Act are subject to widely 
varying interpretations. Institutions should rely on the opinions of legal 
counsel for those cases where the discharge of the loan is in question.  

2.	Chapter 13, Defense and Direct

Reference:  Outline of Chapter 13 Bankruptcy.

Educational loans are not excepted from Chapter 13 proceedings, commonly 
known as "wage earner plans."  The institution may challenge the proposed 
payment plan as not being made in "good faith" by the borrower or to secure 
more substantial payments, but not without incurring some costs.  Rely on 
legal counsel opinions.