Easter Egg Hunt for Exceptions to Bankruptcy Discharge

As if deciphering the Bankruptcy Code wasn’t hard enough, sometimes Congress hides little traps for bankruptcy attorneys in other laws. These laws deny discharge to debtors for certain debts to the federal government for educational or other benefits.

HEAL Loans

The Federal Health Education Assistance Loan (HEAL) Program was a student loan program for eligible graduate students in schools of medicine, osteopathy, dentistry, veterinary medicine, optometry, podiatry, public health, pharmacy or chiropractic and in programs in health administration or clinical psychology. New HEAL loans to student borrowers were discontinued in 1998, and HEAL refinancing terminated in 2004. Under 42 U.S.C. sec. 292f(g), a HEAL loan is only dischargeable if denying the discharge would be “unconscionable.”

Armed Services Debts

37 USC sec. 303a(e)(4) provides that special pay, incentive pay, or educational benefits paid to a service member may not be discharged in bankruptcy within five years after termination of service. A list of various military incentive and bonus programs is contained in Subchapter I, Chapter 5 of Title 37, and the repayment provisions must reference §303a for the discharge limitation to apply.

Section 303(a) includes benefits received while attending a military service academy. After the initial five years prohibition period, section 523(a)(8) prohibits discharge of a service academy debt under the same rules as civilian educational loans. Section 303(a) also excludes from discharge penalties for failure to participate in Select Reserve programs that had associated educational assistance.  See 10 USC §16135.

Troops to Teachers

Financial assistance granted to a service member for participation in the troops-to-teachers program is not dischargeable. Ever. Period. Case closed. See 20 USC 6674(f)(3).

Government Fines

While Section 523 of the Bankruptcy Code makes a criminal fine nondischargeable, 18 USC 3613 makes any civil judgment obtained by the United States to enforce the fine nondischargeable.

Indian Heath Scholarships

An American Indian scholarship grant to pursue a health profession career has bankruptcy discharge restrictions if the student leaves school or fails to fulfill the subsequent service obligations. The debt is not dischargeable for five years from the date repayment is first due. See 25 USC §1616a.

Veterans Benefits

Benefits that are owed under the Veteran’s Benefits Educational Assistance are not dischargeable for five years.  See 38 USC §7634.