Student Loans: GREAT strategy or STUPID idea???

[HHM]

Thanks everyone for chiming in. It appears to be a consensus that it's too risky of an idea, that the possible consequences outweigh the potential benefits. Please know that I wasn't maliciously scheming to attempt fraud...just trying to think outside the box.

Part of me thinks the creditors would have a hard time proving fraud because most of them, for signature loans, advertise them like "use them for anything you want: vacations, debt consolidation, home improvements, etc." They don't restrict use so using them for school loans shouldn't be in violation.

If all you got out of this was that your plan was "risky", I think you are seriously delusional

As with many people who first start looking into BK, you are thinking of Fraud with a big "F", BK fraud does not actually require any dishonesty on the part of the debtor (however, incidentally, this scheme is entirely dishonest). It does not matter how the loans are advertised or anything like that, the fact of the matter is, you would be taking these loans with the express INTENT of not paying them back and filing BK on them, that IS fraud with a big "F".

The main problem is the numbers, we are talking about large sums (relatively speaking). Pretty much the default rule is, any unsecured charge, loan, or cash advance of $7,000+ (regardless of what it was used for), the debtor should wait at least a year before filing BK, because it is too easy for the creditor to make an objection. You are talking about doing upwards of nine, $10K transactions. And to be honest, I doubt she could (on that income) get enough loans to cover all her student loans. Granted, if she went and did all these loans all on the same day, she could probably get the loans (but that is another kind of fraud).

We are NOT saying this is "risky", we are saying that if she does this scheme as planned and files BK, she is "SCREWED"

Honestly, I DONT see anyway she could do this, both from a practical standpoint and a legal standpoint. Assuming she could even get enough loans to do this (doubtful), like I said above, she would need to wait a minimum of 1 year (probably at least 2 to be quite honest), and make the minimum payments on ALL loans during that time (which would probably defeat the purpose of doing the scheme in the first place), to even have a shot at getting the loans dischrged without objection.

[danaf]

It is plain and simple Fraud because the intent is there to file bk, not pay. There will be a democrat in office next year and this law will be changed. Try to hold off til' then.

[hckyfn80]

It is plain and simple Fraud because the intent is there to file bk, not pay. There will be a democrat in office next year and this law will be changed. Try to hold off til' then.

Seriously though, what is the true likelihood of that happening? First, a Democrat still has to be elected president. Second, they'll have to maintain controll of Congress. Third, they'll actually have to push through legislation to change BK law to remove students loans (and while Democrats' interests may not be tied as much to banking special interests as the Republicans', they will still face immense pressure from the banking industry NOT to change the law). Fourth, the bill will have to make it's way successfully through Congress without being significantly altered in a way to exclude student loans. Fifth, BK law changes won't be the most pressing item and it may take years to actually be undertaken. Sixth, there could be timing issues (for example, the current law that excuses tax implications on home foreclosures is for 2007, 2008, and 2009 ONLY)...maybe student loans incurred before or after certain dates will make some ineligible.

Bottomline, it's a wing and prayer to count on legislation and new laws to save the day.

[stephanie4686]

I don't mean this in a bad way, but $17 an hour with a Masters?!?! I think you could help her get a better job hckeyfn. Get a professional resume, take classes on interviewing, and be willing to commute to the city. Just what is her masters in?

[aachudneymiles]

I don't mean this in a bad way, but $17 an hour with a Masters?!?! I think you could help her get a better job hckeyfn. Get a professional resume, take classes on interviewing, and be willing to commute to the city. Just what is her masters in?

I agree she needs a better job, you can make alot more $
with a masters in anything .. sound like she is saling her self short.

[butterflywings]

I am not saying this is the right thing to do but if the Op used 9 or 10 new credit cards and did BT's to his checking account and then paid off the student loans that way the credit card companies would have no earthly idea that the BT's were being used for student loan debt, and it is up to the creditor to file objections to dischargeability; it is not up to the trustee.

If the creditor doesn't object it is very unlikely the trustee will either. Only if the creditor objects would the trustee start looking into it providing the BT's were done at least a year prior.

[TomBrady]

I often think that perhaps the best plan of action is not to be so direct. What I mean is hypothetically get 90k of credit cards (or loans) and then live off of them while using every disposable cent to pay of the non-discharable debt. Then when the bankruptcy hearing comes around you can clearly show what the credit cards where used for and as long as they where not used frivously then there is nothing to complain about. although technically this is still fraud, I have read that it is considered fraud to continue to use credit when you know that you are insolvent or intend at some point to declare bankruptcy, although I presume that this may be difficult to prove.

[MajorMike]

You DO know trustees and judges read this site. They will keep an eye on this and it will spread around. NOT WORTH THE RISK!!! It's F-R-A-U-D!!!

[HHM]

I am not saying this is the right thing to do but if the Op used 9 or 10 new credit cards and did BT's to his checking account and then paid off the student loans that way the credit card companies would have no earthly idea that the BT's were being used for student loan debt, and it is up to the creditor to file objections to dischargeability; it is not up to the trustee.

If the creditor doesn't object it is very unlikely the trustee will either. Only if the creditor objects would the trustee start looking into it providing the BT's were done at least a year prior.

It really does not matter, that idea would not work either.

Keep in mind, there is a paper trail (deposit into bank, check written to student loan, etc). What will trigger the initial investigation is simply the amount involved and the proximity to BK. As the attorneys look into it, they will find the rest.

[CindyLou]

the chances of her getting 90K in credit cards is unlikely anyway. You might get multiple approvals but they would start reducing credit limits once they check the credit reports and see how much available credit is open.... especially with 90k in student loans already there.....

Plus, who could keep up the minimums on that much for a year???

This is just an unlikely scenario, aside from being flat out fraud.

[SUB]

I'm guessing the school loans aren't from business or law classes.

Look if you want to do it for sport, and cost and time are of no concern, it absolutely can be done.

[butterflywings]

the chances of her getting 90K in credit cards is unlikely anyway. You might get multiple approvals but they would start reducing credit limits once they check the credit reports and see how much available credit is open.... especially with 90k in student loans already there.....

That is completely inaccurate. You need to get more knowledge on how the FICO system works and how credit card companies determine what kind of credit lines they give out. Credit card companies give out larger credit lines based on a person's current credit lines. Larger credit lines are viewed by FICO as a positive. In fact, when a person gets an explanation from FICO as to why their credit score isn't higher, small credit lines is one of the reasons.
90k in avail credit is flat out puny, you would be surprised. Avail credit is not debt but most people don't understand that. I have belonged to a large credit message board for 4 years where it is typical for people to have anywhere from 250k to upwards of a million dollars of avail credit. And those amounts are not unusual. Think of it, one Amex credit line of 250k. Before I filed I had way more than 90k in credit lines but my debt was only 30k. All my interest rates were 2.9 to 3.9 percent. The reason I had to file is my dh made 30% less money in 07 and our car exploded at a local store and took out 8 other cars. Thanks Toyota. My fault was in putting us on such a tight budget that didn't allow for unforseen circumstances and possible less income.

Anyway, my point is avail credit is a positive not a negative and credit card companies don't dole out smaller credit lines to people with already large avail credit unless the person has all their avail credit swallowed up in debt and so there debt to avail credit is shot, but that is an entirely different scenario.

[butterflywings]

It really does not matter, that idea would not work either.

Keep in mind, there is a paper trail (deposit into bank, check written to student loan, etc). What will trigger the initial investigation is simply the amount involved and the proximity to BK. As the attorneys look into it, they will find the rest.

I understand that but correct me if Im wrong, but what triggers the investigation of a credit card charge is NOT the trustee, but the credit card companies who decide the BT's were too close to the BK for their amounts. My lawyer has been a lawyer for over 30 years and is a local judge and he said in his entire career he has only had an objection 3 times from credit card companies. All of them were large cash advances done within 3 months of filing or made cash advances after consulting with a BK attorney..

I understand paper trail, but you keep forgetting what triggers an investigation. Do you realize how many people do cash advances prior to filing and never see the light of day of an objection? You yourself on here have said objections are rare. If someone BT"s $10k to their checking account on one card a year before filing they are hardly going to see an objection.
People have larger credit lines than you realize in this country and utilize them frequently, yet objections are very low.

Objections based on BT's are not made by the trustee they are made by the credit card companies if they are ever made at all.

[butterflywings]

There will be a democrat in office next year and this law will be changed. Try to hold off til' then.

With the way things are going I wouldn't hold my breath on that. Besides even if Obama gets in office, I doubt one of the issues in his first 4 years would be BK law.

[HHM]

I understand that but correct me if Im wrong, but what triggers the investigation of a credit card charge is NOT the trustee, but the credit card companies who decide the BT's were too close to the BK for their amounts. My lawyer has been a lawyer for over 30 years and is a local judge and he said in his entire career he has only had an objection 3 times from credit card companies. All of them were large cash advances done within 3 months of filing or made cash advances after consulting with a BK attorney..

I understand paper trail, but you keep forgetting what triggers an investigation. Do you realize how many people do cash advances prior to filing and never see the light of day of an objection? You yourself on here have said objections are rare. If someone BT"s $10k to their checking account on one card a year before filing they are hardly going to see an objection.
People have larger credit lines than you realize in this country and utilize them frequently, yet objections are very low.

Objections based on BT's are not made by the trustee they are made by the credit card companies if they are ever made at all.

Fair enough, but I take my ques and advice from those working the other side, the attorney's doing the objections. And yes, I know that it is initially the creditors that look into the objection.

In any event, we need to clarify as there are a "couple" of different plans floating around. The OP's original plan was:
Get nine different signature loans for $10K, wait 90 days, and file BK. Even you have to agree, that WILL NOT fly. Since the OP mentioned signature loans, I get the distinct impression this person does not have $90K in available credit. But, probably in the span of a few months, she might be able to get enough "avail. credit" by accepting/applying for various credit cards.

The other plans floating out there have this person getting the loans, or whatever, and waiting some amount of time. Regardless of the time frame, all these plans constitute BK fraud; butterfly, you are merely pointing out that it is "possible" to get away with it. But yes, if she waited a year after doing the transactions, the chance of an objection decreases dramatically, but I can almost guarantee that an account with a one-time $10K cash advance that files BK will trigger the creditor's flagging system for further inquiry . But, from the US trustees standpoint, they WILL see the list of creditors (assuming she does not lie on the forms), these transaction will be starring the US trustee in the face on the Schedule of Creditors. (all in roughly the same amount, all taken out at around the same time, etc).