Using Student Loan For Legal Fees

[HopefulInOhio]

The way things look, I am gonna file bankruptcy no sooner than April. I have a $2200 student loan available as of March 26th. If I take that out to use for legal fees mostly...and also for living expenses....and then file bankruptcy, is that okay as long as I show what it went for? I have no idea how much more my divorce is gonna cost me and the bankruptcy is gonna be around $1200. I can make payments and I'm sure I'll have to have it paid off before anything can be final due to lawyer fees and filing the paperwork.

Do you think that's okay to do right before? I sure could use it because work hours have went WAY down....

[bige1030]

It would be a bad idea to say that you used your student loans for legal fees - they're technically for educational expenses only. With that said, I don't think you'll have to justify taking out student loans right before bankruptcy. Why? Well, they're most likely nondischargeable (i.e. you still have to pay them back despite getting a discharge, even if you took them out in good faith). The only way to discharge them is to prove in an adversary proceeding that repaying your loans would be an undue hardship on you and your dependents (which is hard to do unless you can expect not to be able to work at all during most of the repayment period, and you must have made a good faith effort to repay among other things).

[HHM]

Objectively speaking, it is not the wisest move. But at the same time, there is nothing fraudulent or illegal about it. The student loans are non-dischargeable, so you have to pay it back.

I suppose there may be some acceleration clause in the student loan contract regarding if you use the funds for non-educational purposes, but again, it wouldn't really matter.

[bige1030]

In my master promissory note for Stafford loans, there *is* an acceleration clause if the funds are used for non-educational purposes. With that said, I've never heard of anyone encountering that clause being enforced.

[Granny]

Just my humble opinion, but when I was in school, educational expenses included things such as my rent, my child care, my transportation costs and my food. You need to look at the definition of "educational expenses", it may not be limited to just tuition, books, fees and supplies.

[HHM]

Just my humble opinion, but when I was in school, educational expenses included things such as my rent, my child care, my transportation costs and my food. You need to look at the definition of "educational expenses", it may not be limited to just tuition, books, fees and supplies.

True, but it would be a stretch to say "attorney's fees" are educational expenses.

[HopefulInOhio]

Thanks all - lots to think about. I'm gonna ask my attorney on Thursday what he thinks. I wouldn't use all of it on legal fees, but it would really help to know my attorney was all paid off leaving me with money left over that I would indeed use for living expenses. I guess I'm just asking because if I had to show what I took the loan out for and I show that about $1000 went to my attorney, would the trustee have an issue? My hours are cutting down somewhat at work, plus this divorce is going on forever - it would be one less burden to worry about having the extra money, but if it's gonna cause some questions, I won't do it.

Thanks everyone - I get some really good help here - I sure do appreciate it.

[CATCHMEIFYOUCAN]

Just my 2 cents, when I got consolidtion loans, one creditor applied the money directly to the creditors I was consolidating. When I did a consolidation loan with another creditor they just directly deposited the money into my savings account and I did what I wanted with it, whether I paid off my creditors or not - I guess it didn't make a difference. Just a question, how is the money coming to you? Can is be tracked how you spent it? I wouldn't think the Trustee would look into how you spent your student loan (as you do have an obligation to pay it back), if the money goes directly in your checking account than I guess the Trustee can see how you spend the money via bank statements.

Just my 2 cents, Catchmeifyoucan