The primary statutory law that makes it illegal for lenders to deny a new student loan solely because a person discharged past student loan debt in bankruptcy is 11 U.S.C. § 525(c), a section of the U.S. Bankruptcy Code known as the "Protection against discriminatory treatment" provision.
Here are the key details regarding this protection:
11 U.S.C. § 525(c)(1): This law states that a "governmental unit that operates a student grant or loan program and a person engaged in a business that includes the making of loans guaranteed or insured under a student loan program may not deny a student grant, loan, loan guarantee, or loan insurance" solely because the borrower was a debtor in bankruptcy, was insolvent, or did not pay a debt that was discharged.
Protection Type: This law applies to federal student loans (Title IV loans) and loans guaranteed or insured by government or non-profit entities.
Private Lenders: While 11 U.S.C. § 525 protects against discrimination by government-backed entities, the protections against private lenders are less clear. However, 11 U.S.C. § 524(a)(1) makes a discharged private student loan void and prohibits creditors from conditioning a new loan on the consumer paying the previously discharged debt.
Limitation: While a lender cannot deny a new federal loan solely due to the bankruptcy discharge, schools and lenders can still consider a borrower's post-bankruptcy credit history, such as new delinquencies or defaults.
Note: The 1994 Bankruptcy Reform Act (P.L. 103-394) was crucial in making these changes to protect debtors from being denied future loans due to past discharges.
This information is for educational purposes only and should not considered legal advice.
