Couple of questions about Chapter 7

[Wout]

First off my wife and I are planning on filing chapter 7. We pass the means test I believe with flying colors. A quick overview of our situation is as follows. We have a home mortgage and 4 CC between us the total CC debt is less than $10,000.No vehicle loans both our cars are 11-13 years old and paid for. Our mortgage is what is killing us. I lost my job in May 2008 and have since exhauseted my unemployment benefits. I have returned to school but it will be 2-3 years until I graduate.We have come to the conclusion that renting will be a better option for us and we want to walk away from our mortgage as we can not afford it on one income and file on our CC debt as well. My question is I was recently approved for Stafford loans and expect receipt of the first semester's part of them in mid Sept. and the remaining in mid Feb of next year. The Sept. loan amount is not a problem as it will be received and used for school related expenses before we file. However since we are contemplating filing around the end of this year or the first part of next year I am wondering how the loan amount I reieve in Feb. will affect our BK. Will the loan amount be considered income ? I do not wish to file on the student loans and I will need to recieve more Stafford loans before I graduate anyway.

I really hate to have to file but we have exhausted all of our savings and will probably not be able to make our mortgage payment beginning this month.Also I would like to know if we should continue paying our CC payments, now that we have made the decision to file.

Any suggestions are welcome.Also if it makes any difference we are loacated in Kentucky.

Thanks,
Wout

[aces67]

Once you've decided to file you should stop paying your CC's. You'll need money to pay your lawyer with and that's a great way to start saving some.

You should make an appointment with several lawyers for a free consult and then go from there.

[Wout]

Thanks for the reply. Thats kind of what I was thinking about the CC payments. I'm also under the impression that the student loan proceeds are exempt from creditors in a BK. Does anyone know if that is true?

[Wout]

Can anyone offer any info on the student loan proceeds question?

[jribe]

Can anyone offer any info on the student loan proceeds question?

they are not exempt proceeds. You'll need to be able to cover the extra amount with your exemptions. I don't believe they'll count the portion that goes directly to the school; but any given back to you would count.

[Wout]

they are not exempt proceeds. You'll need to be able to cover the extra amount with your exemptions. I don't believe they'll count the portion that goes directly to the school; but any given back to you would count.

I'll find out for sure when we speak with our attorney but, I'm under the impression , from what I have researched that they are exempt. can anyone confirm the following?

From bankruptcy law network...



"... there is a federal non-bankruptcy exemption law protecting student loan proceeds from garnishment. If you select the state, or non-bankruptcy, exemptions in your bankruptcy case, this federal exemption ought to prevent the loss of your student loan proceeds, even if you file bankruptcy while the funds are still on deposit in your bank account. This exemption also contains no dollar limit, so it shouldn’t matter how much of your student loan is still on deposit.

This exemption is known as 20 USC section 1095a(d). It says quite simply that student loans, grants or work awards made under Subchapter IV of Title 20, or Part C, Chapter 34, of Title 42, cannot be taken by creditors of the student receiving the assistance. As a non-bankruptcy federal exemption law, it can be used by anyone filing bankruptcy if they select the state, or non-bankruptcy, exemptions in their bankruptcy case.

Although some states have “opted out” of the federal bankruptcy exemptions, every state must allow use of the state and federal non-bankruptcy exemptions. This means that no matter what state you live in, you can exempt student loan proceeds from the bankruptcy trustee if you so choose.

Claiming your student loan proceeds as exempt pursuant to 20 USC section 1095a(d) could save you from the significant problems which would arise if student loan proceeds were not exempt, and you were forced to quickly spend the money before filing the bankruptcy. "