Preferential Payment Issues - BK Pre-Planning

[danaf]

I have learned that payments of $600.00 or more to an unsecured creditor made within 90 days of a bankruptcy filing is a preferential payment.

I have a small dilemma where it concerns my student loans.

The first one comes out to more than 600 over a period of 90 days. 825 to be exact.

The other 145 a month.

The 145 one is from Sallie Mae with a high interest rate. And they've got me on such a low monthly payment plan that the balance never goes down. Basically it is just like a credit card except that I cannot discharge it in BK. I've definately paid over the principal balance by now and yet it is where it was the day I took it out 7 yrs ago. Sucks for me but I need to deal with it. The good thing is though my other student loan will be paid off in another year so I can take that money and apply it towards this nightmare.

Since I've stopped paying my cc's, I've upped the payment to Sallie Mae by $55 per month - so from 145 or so to 200. Not so hard to do as that is part of my apparel budget and I don't buy clothes every month.

So my question is, should I stop paying them over and just lay low until after bk (paying only the minimum?) Paying them over 55 per month makes it just at 600 over 90 days.

There is nothing I can do about the other loan that I know of. It is gov't subsidized with a very low interest rate and I don't think I can get them to lower the payments, although I've never asked.

I've heard people say that student loans get put into deferrment during bk however I intend to keep paying on them. I also don't need them to pass the means test however they will be included in my schedules.

any thoughts welcome

thanks,

Dana

[no_it_all]

Why don't you just call the lenders, plop them all into a <financial forbearance> and call it a day? Do it tomorrow, you will get the application in a week. Fill it out, send it back and in about 10 days they will be in forbearance. Once in forbearance, wait two, maybe three weeks until the 90 day look-back period has less than $600 in total payments.

Of course, all those gymnastics are rather moot, since the trustee really doesn't give a hoot if you paid your student loans an extra couple of hundred bucks. He doesn't want you paying Uncle Henry for the <auto loan> wink wink...that is the real purpose of that dumb rule.

[danaf]

why would I want to put these loans into forbearance when I want to pay them and when they will be part of my schedules and budget? I guess I'm not getting your response no it all.

[no_it_all]

I guess I am not getting what your question is. You claim your student loans violate the 90 day $600 rule. Sooooo you have exactly two choices. A: don't pay them, or B: pay them and ignore the rule. That is it...Oh, and C: pay less so that when the 90 day look back ends, you haven't paid more than $600 dollars.

My answer was simply a solution to all those problems :-)

When in forbearance you can still pay as much or as little as you want..

You mention using them to your advantage on the Means Test Calculation worksheet..I assume you are over the median? Otherwise that exercise is moot also.

[danaf]

No - I said I pass the means test without factoring these loans in. However I will be including them on my schedules & budget.

[no_it_all]

Ok, I got it...soooo back to my solution..go into forbearance, stopping the payments. File in say, six weeks and you can happily answer NO when asked if you paid an unsecured creditor more than $600 dollars in the last 90 days...right?? BTW, you can still pay your accrued interest while in forbearance (which you will automatically be in during your BK anyway)..Just keep total under $600...is it clear now ;-)

[no_it_all]

R U Pro se?? I assume??

[danaf]

yes - I'm pro se. I will look into this forbearance.

But if I go into forbearance can I still include them in the schdules & budget?

[FreshLikeADaisy]

Danaf, one thing to keep in mind that No It All pointed out in maybe not so many words is that payments made to *non-insiders* are generally not preferential, nor are payments made to non-dischargeable debt (student loans, child support, the IRS, etc.).

In addition, it helps to view it from the trustee's standpoint: let's say you DID make a payment he considers preferential. His sole recourse, outside of dismissal for fraud (and that's if he has more proof than the questionable payment itself!) is to go after the payee -- NOT you -- to recover these funds. I consider it EXCEPTIONALLY unlikely that your trustee, no matter how self-confident is going to go after Sallie Mae or the IRS for that $600 you paid. As No It All mentioned, the preferential payment rule is structured to prevent asset hiding prior to bk, and I don't think anyone considers paying student debt or taxes or child support "asset hiding": the most it might be is poor judgement. But you're never going to see that $$$ again, ever, no matter what, and that takes the "preferential" thing right out of the mix.

I don't know a lot about student loans, so I don't know the best strategy for dealing with them, but it seems like No It All had a good idea about forebearance, IF you can get real figures on what interest you would be accruing if you did. To me, it really depends on how much it would cost you to "buy" forebearance (what you'd eventually spend in accrued interest) compared to what you are trying to achieve *right now*, and it really helps to see the actual figures in black and white before you decide that. I know it's a non-answer in a way, but sometimes everything gets so overwhelming it's hard to see the forest for the trees, and so I wanted to throw it in for your consideration.

Good luck!!!

[no_it_all]

Yes, include them on your schedules, but again..Since you have passed the MTF without them it isn't all that critical..I assume you are going 7... (BTW using student loans to <reduce income> for purposes of passing the MTF is nowhere near a slam dunk..most jurisdictions do not allow it)..They will be in forbearance but you will still be liable for them so put then down...

[danaf]

thanks both. no it all - is MTF the means test? And yes - going for a 7.

[no_it_all]

Just a FWIW...Student loans are unsecured non-priority debt and should be listed on Schedule F.

[no_it_all]

thanks both. no it all - is MTF the means test? And yes - going for a 7.

MTF = Means Test Formula...

[danaf]

oy vey - I asked several lawyers & document preparers and was told they go on schedule E - for priority debts. I specifically asked about this because after reading to nolo ch 7 book and looking at the forms - I couldn't figure out where to put them.

but maybe they were wrong.

[HHM]

Realize, your students loans will automatically go into forebearance anyway, as soon as they receive notice of the BK.