Here, the appellate court reversed a bankruptcy court ruling discharging Roberts’ student loans in a Chapter 7 bankruptcy.

Here, Roberts borrowed more than $25,000 of student loans from Equipment Federal Credit Union and attended Eastern Illinois University. Seven months after Roberts’ student loans became due, he filed bankruptcy and sought to discharge the credit union’s debts.

The bankruptcy court ruled that the loans would be discharged and the credit union appealed that order to the U.S. District Court.

On appeal, the bankruptcy court ruling was reversed and the credit union’s student loans were found to be non-dischargeable.

The Bankruptcy Code prescribes that student loans granted by nonprofit institutions will not be discharged in bankruptcy.

The appellate court noted that a previous court decision held a credit union was not a “nonprofit” institution and, therefore, did not fit within the Bankruptcy Code’s protection when issuing student loans.

The prior court decision found that credit unions were in competition with banks, which are profit corporations, and that credit unions should not be given more favorable treatment.

This appellate court noted, however, that credit unions are nonprofit corporations and do, in fact, qualify for protection from loss caused by the discharge in bankruptcy of a student loan.  Construction Equipment Federal Credit Union v. Mark Roberts, U.S. District Court, C.D. Illinois (No. 92-3228).

Author:  Charles R. Harroun, Attorney at Law