Here’s the case: A man filed for Chapter 13 bankruptcy and began a repayment plan approved by the bankruptcy court. All of the creditors that the man owed were told about the payment schedule and none had any objections. The man successfully fulfilled the repayment plan and the debts were discharged by bankruptcy court. After the debts were discharged, however, the company that had issued the man’s student loans protested that he still owed them $4,000 in interest, even though it was not included in the original payment plan. The case was taken to the Supreme Court, which ruled in favor of the debtor, who held that the debtor had fulfilled his Chapter 13 bankruptcy obligations and therefore did not owe the additional $4,000. The court's reasoning was because the creditor did not ever protest when they were originally told about the payment schedule.

This ruling is a positive precedent for all bankruptcy filers and provides them even more protection from creditors. If creditors fail to object to payment plans within the time they are allowed to protest, they will not be able to successfully object after the debts are discharged. In short, once your debts are discharged by the bankruptcy court, you no longer need to worry about creditors collecting any more debt.

For bankruptcy filers and debtors, this ruling should be considered a breath of fresh air. This is because ever since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act was passed, debtors' rights under bankruptcy laws have been limited. With these two recent rulings, however, at least some important rights of debtors during bankruptcy are being established by the courts.

These are some of the debts that will not be erased with bankruptcy:

• If you owe money for child support
• If you owe money for alimony
• Debts that you did not list on your bankruptcy petition
• If you knowingly gave false information to a creditor and received loans based on the false information
• While bankruptcy will erase your obligation to pay any additional money if your property is sold by the creditor, mortgages and other legal claims on somebody’s property which are unpaid in the bankruptcy case will not be erased.
• If you have debts that resulted from "willful and malicious" harm
• Student loans owed to a school or government body, detailed below

Student Loans and Bankruptcy: Two Student Loan Exceptions

Previously, law had allowed student loans to be discharged with bankruptcy once they had been in pay status for 7 years. This law was changed in the fall of 1998. Today, the general rule is that student loans are not discharged in bankruptcy except for two exceptions in 11 U.S.C. sec. 523(a)(8).

The first exception is that the student loan can be discharged if it is not "insured or guaranteed by a governmental unit" and also not "made under any program funded in whole or in part by a governmental unit or nonprofit institution."

The second exception is that the student loan can be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents." Proving hardship would require showing that you can not provide a minimum standard of living for yourself and your dependents if you are forced to repay your student loan.

It can be difficult to erase your student loans under the undue hardship standard, but it is certainly possible. Facts on your particular case and local court decisions are all factors on determining the outcome. Even if your loan fits into an exception, discharge may not be automatic and you may need to file an adversary proceeding in the bankruptcy court to get a court order which affirms the debt is in fact dischargeable.

Remember that student loans are contracts like any other loan and are therefore at risk of fraud, and are also not enforceable when the school has closed prior to the student completing his/her education. Just like with other contracts, is possible to contest the enforceability of the loan.