Can I payoff a student loan before filing?

[kpminn]

I will be getting a tax refund soon and would like to know if I can pay off a student loan that I got for my son's tuition in 1998. I still owe approx $10,000.
Can I pay this off before I file CH 7?

Thanks!

[momofthree]

That would be considered a preferential payment. If you do so, you'd need to wait until the look back for preferential payments has passed--I think it's 180 days, someone please correct me if I'm wrong.

[justbroke]

As mom wrote, if you do that, it could be "avoided" as a preferential payment. While student loans are "special", in that they are non-dischargeable, they also are no different than your unsecured credit cards. Therefore, you can "prefer" to pay one unsecurd creditor at the detriment of another. This is known as a preference.

While the Trustee wouldn't come after you, they'd go after the student loan creditor. The creditor would return the $10K and then the Trustee, after taking his/her "fee" ($1,750 on $10K), would then spread the remaining $8,250 across all the unsecured creditors which filed claims.

So, paying this in advance technically HURTS you. You end up spending $10K only for it to go to all the unsecured creditors and NOT pay down your student loan by much (unless your student loan is significantly more than all your other unsecured debt and the pro rata share ends up being larger).

I would consult an attorney on what's the best thing to do if you're getting a large refund. This could include putting it into a retirement account or somewhere else "safe".

The look-back for non-insider payments is 90-days, which is the period that you're "technically" insolvent (11 USC 547).