Stipend for a graduate student

[addision]

I have read that in California under CCP 704.190 that student financial aid for expenses is exempt income.

Here is the text of the code:

(a)As used in this section, "institution of higher education" means "institution of higher education" as defined in Section 1141(a) of Title 20 of the United States Code, as amended.

(b)Before payment, financial aid for expenses while attending school provided to a student by an institution of higher education is exempt without making a claim. After payment, the aid is exempt.



This leads me to additional questions.

1. Is this only for the amount of tuition expenses or does it apply to amounts over and above the cost of education?
2. Does this apply to grants and fellowships distributed through the financial aid office?

I guess the ambiguous word here is "expenses".

I will be filling chapter 13 separate from my wife in September. She is a graduate student and has been receiving about $3000 financial aid every quarter over and above what the cost of tuition is and that has been helping out a lot. In October she will start receiving $2500.00 per month for 3 years as a stipend for winning an National Science Foundation Grant.

I really need to know how the Central District Court here in California would view this. My current job will be ending in June and I will find something else. It may not be what I want, but I have to have a job to file CH13. Will the court exempt all this as it does come from the financial aid office in much the same way they would exempt social security? If it is all exempt, do I include it on the projected income?

Right now we are under the median and I think it will be easy to show no discretionary income, but it could be a little more difficult if hers is not exempt.

Anyone had experience including a grant or financial aid in your bankruptcy?

[LadyInTheRed]

I don't know the answer to your question, but I think you are confusing deductions from income when calculating DMI with property exemptions.

The California CCP describes what assets are exempt when determining what can be liquidated in a Chap 7 or whether there is a minimum amount that must be paid to unsecured creditors in a Chap 13. How your DMI is caclulated is based on the Bankruptcy Code.

It sounds like what you want to know is whether the financial aid is considered income when calculating your plan payment. I don't know the answer to that question either, but I know it has nothing to do with the California CCP. Maybe somebody else knows if it is included as income.

Right now we are under the median and I think it will be easy to show no discretionary income, but it could be a little more difficult if hers is not exempt.

If you can't show discretionary income, then you can't fund a Chap 13. What is preventing you from filing a Chap 7?

[addision]

DMI Confusion

If you can't show discretionary income, then you can't fund a Chap 13. What is preventing you from filing a Chap 7?

I am not able to file chapter 7 because I have a rental house that provides some income that I want to keep and do a lien strip. I am getting it modified right now and the modification will be finalized in August. I can't keep it with a chapter 7. I have heard some mention a "ride through" but this will not work as there is a second lien.

In regards to the exempt income, thank you for mentioning that. I did not know that there were two different standards; one standard for the means test and another for the DMI. It was the DMI I was concerned about.


Thank you

[LadyInTheRed]

In regards to the exempt income, thank you for mentioning that. I did not know that there were two different standards; one standard for the means test and another for the DMI. It was the DMI I was concerned about.

You still misunderstand. California law has nothing at all to do with the calculation of your income, on the means test or in the calculation of your DMI. It has to do with whether your assets are exempt (Schedule C of the BK petition which has nothing to do with income). In a Chap 13, if you have more assets than you can exempt, then your plan has to pay unsecured creditors at least what they would receive if those assets were liquidated in a Chap 7. If you have non exempt assets, you have to show enough DMI to cover the minimum plan payment.

In California, there are two exemptions systems. I believe the part of the student aid section you quote is part of System 1. Unless you have significant equity in your home, System 2 is usually better because you can use unusued homestead exemption as a wildcard to exempt other assets. If you have no home equity, that leaves of $23K of wild card exemption. The financial aid probably will not be a big issue as an asset. If it is, you can just wait to file until your wife receives the payment and pays as many expenes as she can.

The monthly stipend could be a big issue because my guess is that it will be considered income. You really need to sit down with an attorney to discuss all of this.

If you provide some info on your assets, we can help estimate what minimum DMI you have to show to fund a feasible plan. Do you have any equity in your home? If so, how much. Is there equity in the rental house (I'm guessing not if you plan to do a lien strip)? Any other significant assets? Are you behind on any secured debt payments other than on the lien to be stripped? If so, how much is the overdue amount? Are you behind on any child or spousal support payments?

[LadyInTheRed]

I have heard some mention a "ride through" but this will not work as there is a second lien.

I forgot I wanted to comment on that. One strategy would be to file a Chap 7 and get the mortgages discharged. Stop paying on the 2nd and then try to negotiate a settlement. You would be taking a risk. But, if you find out a Chap 13 is not going to work for you, it may be worth taking the risk.

When you say the rental generates income, do you mean it covers both mortgage payments, taxes, insurance, maintenance expenses, and still leaves a profit?

[addision]

OK, so the exemption is for the amounts she already would have received, so that they would not have been considered an asset.

As far as assets, both properties are negative equity. Primary residence is 270k owed worth about 220k, Rental 210k owed and worth 130k. There is a second on the rental property that I haven't paid on in about two years. They haven't foreclosed because its not worth it, and the original lender (Navy FCU) has sold off the loan. I would like to just negotiate a payoff on the second and file chapter 7. But I don't believe the holder of the second note would do it. If I get the modification completed I will have a payment of $900.00 on my residence and if all goes well a payment of about $600 on the rental property which rents for $950.

As far as other assets, we have a 2004 infinity with 160k miles that still runs well and we have a 1996 honda prelude, bot are paid off. Other that that we have normal household items for a family of four. No expensive jewelry or art. So one car will be about $5500.00 and the other is worth about $1100.00 according to KBB dealer trade value.

I do have a private educational loan for 20K that I will have to start making payments on again. It has been sold off as well. I don't know how to figure what the payments will be on that as it was a variable rate loan.

So other than the properties and the educational loan we do not have any fixed monthly expenses and i don't have any child support that I pay out, but my wife does get $800 per month for her kids that I assume I will have to count in the budget(I hear conflicting opinions on this one). So I am going to closely watch what i can do with my current and proposed budget will be.

In total my income before expenses would be..

Graduate Stipend 2500.00
Child Support 800.00
Rental Income 350.00 ish
My salary ~ 2000.00
Total 5650.00

Thanks

[LadyInTheRed]

The financial aid is probably an asset if your wife has received an award letter, but has not yet recieved a disbursement. But, it sounds like you will have no problem exempt all of your assets using System 2. It doesn't sound like you will have any non-exempt assets or minimum amounts that have to be paid to unsecured creditors in a Chap 13. You're current on everything but the 2nd on the rental, right?

If you have any cash you could use to settle that 2nd, it is worth a shot to make an offer of whatever you can afford. After 2 years of non-payment, they very well may be willing to settle. You don't know until you try. Might as well give it a shot before filing BK.

If the 2nd was discharged in a 7, they'd be even more likely to settle. One bkforum member settled a discharged 2nd for 5%. But I can understand why you would prefer to strip the lien in a Chap 13, especially since you are making a profit on the rental. If $2,000 is your gross salary, it sounds like you are under median. So you would probably have a pretty low plan payment, even with the stipend.

Have you consulted with any BK attorneys yet?

[addision]

The only other item I am concerned with is the education loan. This was a variable interest rate loan at a low percentage when I had it current. However, I have not paid on it for a few years and like I mentioned it was written off and then sold off.

How would I calculate the monthly payments for this since it was a variable rate loan? I know I will have to continue paying on it since it is an "educational loan".

I met with a couple of attorneys a few years ago but I didn't have the greatest confidence in the ones I met with. One was so rigid in his beliefs he said that I couldn't do a lien trip nor could I include any of my joint debts. The other just appeared as if he handled easy cases where he didn't have to do any work. I'll keep searching for one who will answer my questions with answers I can validate and one I have confidence in.

[LadyInTheRed]

I don't know about the loan. In some districts, it's not allowed as a deduction from income. Definitely a question you have to ask of a local attorney.

As far as joint debt is concerned, if you file BK alone, the discharge will protect community property and your separate property. Creditors can still sue and get a judgment against your wife, but they can only collect against her separate property, if she has any. If the joint debt is in your name alone, I have read that the creditor is unlikely to pursue your wife, but they could.

Why is your wife not going to file?

[dmc-2008]

Are you in so cal?

[addision]

My wife will not file because she is getting financial aid, in one form or another. We don't want to take the chance that a financial aid officer (or the court) will disallow her from getting aid because she is in a bankruptcy. This is just too important to take a chance with. She has no other separate assets. I owned these properties well before I met her and I have always paid for them out of my separate account.

We are both aware that they could attempt to go after her as long as we are married. However, we feel once I am in the BK we could put up a pretty good fight.