In Violation of Incurring Debt (School Loans) Without Permission - Big Trouble!!

[runrabbitrun]

I am in 36 month plan which was Confirmed 33 months ago. I have only 3 months left in Chapter 13 plan. All payments are current.

Foolishly, I took school loans (subsidized and unsubsidized) ‘twice’: In month 12 and month 24. The funds were used to pay Full-Time school tuition directly (approximately $40K total). I also work Full-time (40hours/week) which is how I paid into the Plan. Maintaining Dean’s list status.

The school Financial Aid Officer did not have any issues to approve my loans without Trustee or Attorney letters, though she did know I was in BK status.
I recalled she stated that I will have ‘in-school deferment’ so will not effect my monthly payments and I will finish the Plan before I graduate and need to start paying.

Looking back, I have no idea now why the process was so smooth, but because was so smooth that I did not think to then go the Court for permission after getting the approved loan. I just signed and accepted and when to school the last few years. All clear sailing.

I discovered recently (when reading here about another issue) that I made a terrible mistake by not getting Trustee permission, which I realize now that I clearly “had” to do according to my Confirmation. And probably would gotten to help my long-term career opportunities

Somehow this has not blown up in my face.

Besides getting with my attorney asap to discuss the high likelihood of the case being dismissed if discovered (which it probably will at some point soon when they do the final audit at the end), are there any other thoughts or experiences with something like this?

Can I be arrested and sent to jail for the violations?

Is my situation salvageable? Can a Motion to Incur Debt be filed so late, after such multiple violations have been committed?

Thanks to anyone for constructive advice.

[newbie2]

First, the "final audit" is a trustees audit in which they look at the amount paid in to the plan against the amount paid to your creditors. As far as I know it is not an audit of your financials. (You'll receive a copy of this audit after your case is discharged.)

I would still call your attorney though and let him / her know what happened regarding the student loans, so that no one is blindsided in case this does come up. Good luck to you!

[despritfreya]

NB2 is on the right track. The fact that you took out the loans without Court permission is not going to impact your ability to complete your Plan and obtain a discharge. The reality is that the Trustee just needs to make sure you complied with the payment requirements and the submission of tax returns/refunds (if required). No one is going to ask about post petition loans.

Specifically, as it relates to student loans, the anti-discrimination provisions under 11 USC 525(c) talks in terms of obtaining such loans either during or after the filing of a bk. Lenders of such loans "may not deny a student . . . loan . . . to a person that is or has been a debtor under this title . . ."

So, while one normally should obtain permission for post petition debt when in a reorganization type bk, it is unlikely that the failure to do so, in and of itself, would result in the dismissal of the case.

Des.

[booradley61]

Talk to your' attorney, but it's highly unlikely that the Trustee will find out about these loans. If there will be a problem, your attorney will know how to deal with it, and I wouldn't panic just yet. As far as the final audit, it is just an accounting of how everyone was paid. They look at nothing else but that. Unless a creditor somehow finds out about and brings your post-petition debt to the Trustee's attention (and that's not very likely either) it's very unlikely that they'll ever ask or find out. At the end, they're busy making sure everything has been paid properly. They don't really ask about or follow up on post-petition debt.

[mountanddo]

The good news is that is doesn't look like you are going to jail.