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: Consumer Bankruptcy Blog from Legal HelpersStudent Loans - Are these funds considered income in bankruptcy?
By Richard K. Gustafson
This question seems to come up a lot in my conversations with people, especially those working and going to school. The concern is that if student loan funds that are deposited into a bank account are counted as income for purposes of qualifying for chapter 7 bankruptcy relief. Keep in mind that nothing in this blog should be relied upon as legal advice. Every situation is different and should be analyzed in detail by a professional.
The reason the question comes up is because in prior posts and information on my website at www.legalhelpers.com I mention that to qualify for chapter 7 relief, generally, the debtor shouldn’t have much if any ability to repay creditors. I’ve also discussed the “means test” under the law which was Congress’ attempt at an objective test to determine whether a debtor has an ability to pay.
The answer is that borrowed money is not income. If you borrow money from a student loan agency you are not getting issued a 1099 or W2 at the end of the year and you do not have to include that money in your taxable income. Thus, in a bankruptcy case I would NOT include money I received from a loan as income in my budget or with respect to the means test.
Full post as published by Consumer Bankruptcy Blog from Legal Helpers on October 27, 2006 (boomark / email).
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It is well known that student loans can’t usually be discharged in a bankruptcy case. What is not well known is why, and what you might be able to do about it. Section 523(a)(8) of the bankruptcy code says that student loans cannot be discharged in either chapter 7 or chapter 13, unless repaying the student loans [...
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Unless the bankruptcy debtor can satisfy the daunting legal standard of “undue hardship,” student loans are not dischargeable in a bankruptcy case. However, the mere fact that student loans will not be discharged does not mean you should give up on the bankruptcy process...
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Kent Anderson posted an article on this subject on Bankruptcy Law Network. Working in the bankruptcy area, and having been a consumer bankruptcy attorney for many years, I have always worried about the nondischargeablilty of student loans on law school graduates...
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Two Massachusetts bankruptcy judges have disagreed about requiring a debtor to apply for the Income Contingent Repayment Plan when seeking a discharge of student loans. Student loans are discharged if, after a trial, one can prove that repayment will impose an undue hardship...
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Bankruptcy clients usually accept the fact that student loans are not dischargeable. Some clients are aware of the "undue hardship" exception where these loans can be discharged. It is very difficult to wipe out student loans as an undue hardship...
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Student loans are hard to get rid of; even in bankruptcy. Congress only allows a bankruptcy court to discharge student loan debt when not doing so causes undue hardship for the debtor or the dependents of the debtor...
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