Student Loan Disbursements b/f Chapter 7/Need Advice

[brighter]

Here's my situation--

1) I have a house problem (severe underwater, etc.) and some unsecured debt and I want to file a chapter 7 bk. I have hired an attorney.

2) I am scheduled to complete my 2 yr. grad program in 5/2010. I am scheduled to receive my financial aid disbursement and refund containing BOTH Stafford and GradPlus on approximately 1/20/2010. I use direct deposit.

3) My refund will provide much more than 10K of cash in my bank account (which I can wildcard). With this refund, I will have approx. 20K of cash in my bank account. As a result, my attorney wants to file b/f the money hits my bank account.

I cannot risk not getting the disbursement or money that I need to pay tuition and for living expenses.

I am worried that I file Chapter 7 b/f my disbursement date, I will not get my disbursement (since I have read on here that disbursements stop during bk). I'm particularly concerned about the GRADPLUS since it involves a credit check and I will not be approved if I have to reapply (last year, the money was secured for disbursement, but my credit currently disqualifies me).

However, is there a lag time between filing for chapt. 7 and the notification to the lender/bank? Meaning, can I file a week or so b/f the expected disbursement and be okay? OR can I cancel my direct deposit, have the refund check mailed to me, and file on the day the check is expected to get cut. That way, I don't have the money in my bank account yet nor in my possession when I file but I will still get my check and can deposit after I file?

I hope that this is clear. Your help is greatly appreciated. Thank You!

[backtoschool]

I received this same post from a different user name in my private messages, so I am not sure what is going on, but I will answer the question.

If you applied for a stafford loan and are in school before you filed for bankruptcy then your disbursement will happen. You may have to sign a new master promissory note, but you will still get the disbursement. Once you get your refund (disbursement - tuition payment that goes directly to the school), and it hits your bank account, it is considered a cash asset and has to be exempted. The loan is not considered income however.

Gradplus loans are private loans and operate differently. Gradplus loans all depend on the lender's rules but usually will require a co-signer once you have filed for bankruptcy. Gradplus loans are still federal loans that use the fafsa as part of the application so they cannot deny you the loan or the disbursement solely because of filing for bankruptcy, but they can require you get a co-signer if you file for bankruptcy after you were awarded the loan. They WILL check your credit each year you reapply for a gradplus loan, and once they are notified of your bankruptcy, (which they will be as one of your creditors) they will probably require a co-signer.

[tdawg]

Hey brighter,

What backtoschool said should be correct. And I think there might be a short window where you could file, then still receive financial aid shortly afterwards. However, if you have to list that as an asset I'm not sure...

Be careful if you have too much time between filing and receiving stafford loans. With your timeline, I'm guessing you should be fine. I filed just before Thanksgiving, had my 341 just before Christmas, and was hoping to get stafford loans in the next couple weeks go take a few classes. However, I don't think that I'll be able to get them until after my bk is discharged. I've talked with several people at the financial aid office. So, I guess the whole point of all of that is if you filed, then a month or two later were hoping to receive a stafford loan, that could throw a wrench in your plans. Good luck! :-)

[brighter]

back to school & tdawg, thank you for the replies and your help. Best of luck to you!