Asked in Bankruptcy for California

Q: If I owe Pell grant money back to my college and I file for bankruptcy will it be discharged?

I understand that student loans aren’t discharged, but are grants different?

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3 Lawyer Answers
Timothy Denison
Timothy Denison
Answered
  • Bankruptcy Lawyer
  • Louisville, KY

A: Grants don’t have to be repaid, so it’s not an issue.

Aaron Michael Lloyd
Aaron Michael Lloyd
PREMIUM
Answered
  • Bankruptcy Lawyer
  • San Bernardino, CA
  • Licensed in California

A: If it was a grant then usually that money is not owed. Do you owe them money? If so, are you sure it was a grant and not a loan? Student loans are not generally dischargeable in bankruptcy. There are talks to make student loans easier to discharge however as of now there is not an easy route to the dischargeability of student loans in bankruptcy.

Reed Allmand
Reed Allmand
PREMIUM
Answered
  • Bankruptcy Lawyer
  • Dallas, TX

A: If you have a student loant hat you received, you're going to be required to pay the student loan back. There is the possibility in some rare circumstances to be eligible to discharge a student loan through a bankruptcy proceeding, however that recovery requires an adversary proceeding, and the burden of proof is quite heavy on the actual student or bankruptcy client to prove the elements required to do that. The test that governs discharge ability for bankruptcy debtors to discharge a student loans, is the Bruner test, which has three prongs that you're required to prove.You have to prove that you've made a good faith effort to try to repay the debt. You also have to prove that you have a some type of hardship or impairment that's preventing you from being able to repay the student loans and that the impairment is going to continue indefinitely. The way the courts have interpreted this is that it's very difficult to meet those metrics unless you're actually fully determined to be disabled.

And if you do meet the disability requirements under Social Security, you're eligible to submit a form directly to the Department of Education to have the student loans discharged without even having to file bankruptcy case!

There are some instances where it is easier to discharge private student loans. There's varying tests for that as well. For example, if the university that you were enrolled in loses their accreditation, and they can no longer provide the kind of degree you want, there's a provision where you can potentially discharge that debt. Also, you're only responsible for the portion of the loan that covers your tuition and living expense. If they provide you more money than it costs to cover the cost of education, the portion in excess of the education can be discharged in some circumstances.

In your case, grants do not have to be repaid, only loans do.

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