Getting Student Loans Right before Filing

[BrokenBrklyn]

Hi Everyone-
I'm new here. I'm filing for bankruptcy and I've been working with a laywer since April.

I have 50,000.00 in unsecured credit card debt mostly from living and business expenses, and no assets what so ever.

My lawyer has said he wants me to wait 2 months until filing because he felt my income was too high the last six months. Which is 2 months longer than I wish it was because I wanted to try to go back to school once this whole mess is over.

I looked into schools and went into one and felt the pressure to apply since the spaces fill up pretty quickly. I will be taking out federal aid and Stafford loans to do this program.

I'm looking at filing for bankruptcy in November, this program starts in January.

My laywer doesn't seem to think signing the promissory notes or disbursments will affect the bankruptcy because student loans are not dischargeable. He did say however, to sign the promissory note as soon as possible.

However, while looking at the counseling info for the note, it says the lender can revoke disbursments due to bankruptcy.

So my question is this, will I be ok?

Or will I basically sign up to do this program, and not end up getting any disbursments and have the loan completely pulled and stuck with a bill for the entire year?

And if one disbursment has already happened, will the trustee look at it and take it away? Or will my case be dismissed because I signed up for a student loan shortly before filing?


Thanks!

[backtoschool]

Hi Everyone-
I'm new here. I'm filing for bankruptcy and I've been working with a laywer since April.

I have 50,000.00 in unsecured credit card debt mostly from living and business expenses, and no assets what so ever.

My lawyer has said he wants me to wait 2 months until filing because he felt my income was too high the last six months. Which is 2 months longer than I wish it was because I wanted to try to go back to school once this whole mess is over.

I looked into schools and went into one and felt the pressure to apply since the spaces fill up pretty quickly. I will be taking out federal aid and Stafford loans to do this program.

I'm looking at filing for bankruptcy in November, this program starts in January.

My laywer doesn't seem to think signing the promissory notes or disbursments will affect the bankruptcy because student loans are not dischargeable. He did say however, to sign the promissory note as soon as possible.

However, while looking at the counseling info for the note, it says the lender can revoke disbursments due to bankruptcy.

So my question is this, will I be ok?

Or will I basically sign up to do this program, and not end up getting any disbursments and have the loan completely pulled and stuck with a bill for the entire year?

And if one disbursment has already happened, will the trustee look at it and take it away? Or will my case be dismissed because I signed up for a student loan shortly before filing?


Thanks!

Hi BrokenBrklyn,

By my forum nickname you can see that I had the same plan that you do, I am just ahead of you by six months or so.

I just moved to Michigan to go back for a second graduate degree after living in Brooklyn Heights and then Dumbo for the last ten years.

Here is how stafford student loans are affected by bankruptcy:

1. If you are in default, or behind in payments or trying to contest the non-dischargability of the loans through an AP trial in your bankruptcy, then you cannot get new aid while filing.

2. If you are in good standing and are not trying to fight the non-discharability of your loans in a bankruptcy then you can get aid if you apply for the aid before you file and have the aid go to your school first and be applied towards all your expenses with you getting a "refund" for the loan amount left after your tuition is paid.

3. Student loans do not count as income on the means test but they do count as an asset if the money is sitting in your bank account, so you have to plan carefully when that money hits your account or you will have to exempt it.

4. You cannot be denied a stafford loan due to bankruptcy. They are not credit based, but are instead need based based on your fafsa info.

[BrokenBrklyn]

Thank you soooo much Backtoschool. I'd be interested to hear your story, if you filed in Brooklyn! I just got my first call from an attorney's office about one of my credit card debts and I'm very nervous about everything.

I'm not going to try to include the loans in the bankruptcy.

I have no previous student loans that are in default.

Depending on if I take the program full or part time, I'm just taking enough out to cover book expenses + 1 or 2 additional classes that relate to my degree at the very most. I'm so scared of accruing the debt I did have that I really want to be conservative with this. If I do go full time, I think my total refund for the entire year will be around 600.00. Which I'm not worried about and can spend on some thing applicable in about five seconds anyway.

My other question I guess would be, can the trustee take future or pending refund amounts?

Also, can the lender of the government loan cease disbursements to the school because I filed for bankruptcy?

[backtoschool]

Thank you soooo much Backtoschool. I'd be interested to hear your story, if you filed in Brooklyn! I just got my first call from an attorney's office about one of my credit card debts and I'm very nervous about everything.

I'm not going to try to include the loans in the bankruptcy.

I have no previous student loans that are in default.

Depending on if I take the program full or part time, I'm just taking enough out to cover book expenses + 1 or 2 additional classes that relate to my degree at the very most. I'm so scared of accruing the debt I did have that I really want to be conservative with this. If I do go full time, I think my total refund for the entire year will be around 600.00. Which I'm not worried about and can spend on some thing applicable in about five seconds anyway.

My other question I guess would be, can the trustee take future or pending refund amounts?

Also, can the lender of the government loan cease disbursements to the school because I filed for bankruptcy?

I actually ended up filing in Michigan after I moved, but I definitely looked into filing when I lived in Brooklyn so I do know a bit about the process there.

Are your stafford loans going to be through direct loans or through a bank? Direct loans will not stop disbursements.

The trustee will not take future or pending stafford loan disbursements.

[BrokenBrklyn]

Good for you. I'm really anxious about it to be honest. I've heard from some people that their creditors meetings are easy and breezy and no one shows up and everything goes peachy. I'm really scared that for some reason, I'm some special case and it's not going to work out for me.

I'm not sure if they will be through a lender or direct. If through a lender, they can cease payments, right?

The information about this I've found on the internet is very confusing so I really appreciate all of your help with this. Please let me know..

[backtoschool]

Good for you. I'm really anxious about it to be honest. I've heard from some people that their creditors meetings are easy and breezy and no one shows up and everything goes peachy. I'm really scared that for some reason, I'm some special case and it's not going to work out for me.

I'm not sure if they will be through a lender or direct. If through a lender, they can cease payments, right?

The information about this I've found on the internet is very confusing so I really appreciate all of your help with this. Please let me know..

If it is through a lender they can cease disbursements but some won't. If it is direct they will not cease disbursements.

Filing for bankruptcy in nyc is all about income. The trustees hate to see above median chapter 7 filers and high income filers have trouble getting chapter 7's.

[BrokenBrklyn]

That totally makes sense now why my lawyer wanted me to wait to file when I only have made like 14k in the last six months.

I'm going to talk to the financial aid officer at the school. Do you think it would be better if through a lender to just wait until this whole fiasco is a done deal?

[backtoschool]

That totally makes sense now why my lawyer wanted me to wait to file when I only have made like 14k in the last six months.

I'm going to talk to the financial aid officer at the school. Do you think it would be better if through a lender to just wait until this whole fiasco is a done deal?

I wouldn't wait. Most lenders won't stop disbursements. Chances are direct loans are what your school uses anyway. But definitely check on what lenders your school uses.

[2manybills]

hey bts: I didn't you were a brooklyn kid too. I was born there, but spent a lot of time there with family and an Italian deli in East New York.

Good luck to you too BrokenBrklyn!!

[backtoschool]

hey bts: I didn't you were a brooklyn kid too. I was born there, but spent a lot of time there with family and an Italian deli in East New York.

Good luck to you too BrokenBrklyn!!

I lived in Brooklyn (right near the Brooklyn Bridge) for ten years (five years in Brooklyn Heights and five years in Dumbo) and loved it!

[2manybills]

I lived in Brooklyn (right near the Brooklyn Bridge) for ten years (five years in Brooklyn Heights and five years in Dumbo) and loved it!

I love to go visit but am glad my mom moved us out here many years ago.

[backtoschool]

I love to go visit but am glad my mom moved us out here many years ago.

Frankly, I am not missing nyc at all. I live in a college town now (Ann Arbor, Michigan) and am loving the slower pace.

I also love the fact that my cost of living is now one fifth what it was in nyc.

[2manybills]

Frankly, I am not missing nyc at all. I live in a college town now (Ann Arbor, Michigan) and am loving the slower pace.

I also love the fact that my cost of living is now one fifth what it was in nyc.

That's awesome! You're on your way to your Fresh Start! It's great once all that pressure is off from all of these bills. The relief for us has been unbelievable.

[jonnarocka]

Backtoschool is correct

I'm a financial aid officer. What Backtoschool said is correct, and I want to underscore the importance of determining whether you will be borrowing from Federal Direct or a FFELP (bank) lender, since many FFELP lenders will stop disbursements on a loan that was certified pre-bankruptcy (they are instructed to do this by the Common Manual). Under FFELP, your Stafford loan will have a servicer (such as Sallie Mae), a lender (the bank), and a guarantor (such as USA Funds). As an example, USA Funds states the following:

"In addition, as noted in Appendix C of the Common Manual, USA Funds' policy requires a lender to cancel remaining disbursements scheduled after the filing of the bankruptcy. Although the borrower's eligibility is not affected by the bankruptcy, USA Funds believes it is important to the integrity of the FFELP to ensure that loans can be clearly defined as "pre-petition" and "post-petition" debt. The goal of this policy is to eliminate any ambiguity regarding eligibility for discharge of the loan. Please note, however, that this provision applies only to disbursements scheduled after the bankruptcy. Borrowers must be notified and advised that they may obtain the additional funds (if still eligible) by re-applying."

What this means is that if your disbursements are canceled you're not necessarily SOL, you'll just need to complete a new MPN (master promissory note) so that the lender/guarantor can easily track which loans are pre-BK and post-BK. So if you complete an MPN now you'll most likely have to do a second one later anyway. Do talk to your FA officer to see what their specific procedures are on this. We recently had a new student who had just filed Ch7 and the case was due to be discharged two months after the term start date. The student completed a Federal Direct MPN, we certified the loan, funds were disbursed and all is well.

From page 51 of the Federal Student Aid Handbook: "A borrower who includes a non-defaulted FSA loan in an active bankruptcy claim, so that collection on the loan is stayed, is eligible for aid as long as he has no loans in default (including the stayed loan)."

Hope this helps!