What happens to student loan disbursements (in TN)

[Exployer1234]

I have pulled up my BK paperwork. I will say that I did have a garnishment that was starting to go through right before i filed BK. They were garnishing what I had in the bank and considered part of my student loan money as income. It was not exempt from being garnished. So to answer your first question on whether they can garnish the money: the answer is yes. Once you deposit the money in the bank it is fair game in TN.

Now in the Chapter 7 cases on your schedule B you will have to list what is in your checking account and how much cash is on hand. You will also need to list the amount of all other assets.

On your Statistical Summary of Certain Liabilities and Related Data you will list what student loan debts you have presently.

So no where in the paperwork does it describe why you have the student loan money in your possession. In the BK courts this does not matter. Since the loans are counted as income.

This is the exact summary of exemptions that can be used in a BK case

http://www.bankruptcyinformation.com/tn_exemp.htm

[Exployer1234]

Student grants normally go to the school and student loans go to any unpaid tuition after the grants are used. what is left over and sent to you from the loan is considered income. I know that sucks, but it is not exempt from being taken in a BK. The only way to ensure that it is not taken from you is to have 4000 or less in assets and cash. Anything over that will be considered part of the BK court and can be distributed with your creditors.

Now if you own a home you do have a homestead exemption and may be able to tie your loans into this exemption.

I know that the money is supposed to be used for paying bills, but in a BK it does not work that way. All I can say is contact a lawyer and discuss what you have. I can pull my BK papers up for you and tell you exactly what is on them.

[Clabbergirl]

Ok, for those who are better at interpreting the law than I, here is the code I found regarding student loans and exemptions:

(d) No attachment of student assistance
Except as authorized in this section, notwithstanding any other provision of Federal or State law, no grant, loan, or work assistance awarded under this subchapter and part C of subchapter I of chapter 34 of title 42, or property traceable to such assistance, shall be subject to garnishment or attachment in order to satisfy any debt owed by the student awarded such assistance, other than a debt owed to the Secretary and arising under this subchapter and part C of subchapter I of chapter 34 of title 42.

[Clabbergirl]

Employer1234, what you've described is my worst fear. It seems like it should be illegal. What if the student loans are federal ones? You'd essentially be borrowing federal education money at a low interest rate to pay past unsecured debts. And then saddling yourself with a loan you cannot ever discharge. My own research has turned up information contrary to what you've said here, but of course all I've found to argue it are attorney websites.

I would cancel the current loan I have if I could get another one, but that is not possible.

[Clabbergirl]

Thank you for replying. 'Federal non-bankruptcy exemptions' set me googling, and I've found several things that explain what you are saying here. If I can file before I get the next stipend, I will. It's coming up with the filing fee +$850 lawyer fees at this time of year that's making it difficult.

I've included a link that explains this also.

[Exployer1234]

I am in TN. I received money left over from my student loans. I filed Chapter 7 in April of this year. I received my loan disbursement check back in January. You are allowed to have 4000 in assets. This amount includes the cash you have, so if you receive 2000 from the loan disbursement check and have 2000 in various other assets you will be fine. Any more than that the trustee will take. The loan money you receive back is not exempted from being taking when you file BK.

All the trustee asked me was what i did with the money that I got back from school. I had just a little over 4000 in assets when I filed. I told him I used the money to pay my lawyer, got my car running that was broken down, and used some of the money for school books and living expenses. I said I had to list what I had at the current time of filing. I said that number is now lower since I had to pay the lawyer. He was fine with this.

I would not pay any creditors if you plan on filing BK. I would use the money to stock up on living expense. Just don't buy luxury items and pay anyone more than 500 dollars for any items. The trustee will normally ask what you have done with the money you received. I would just be honest and tell them exactly what you have done with everything.

[chrisdfw]

I believe then you use state exemptions you also get to use federal non-bankruptcy exemptions, which I believe includes
education benefits. You will likely have to be careful to keep them separate and may even have to fight a trustee if you
still have them around after a few months.

I might just file before I got the money. Do NOT use the money to pay creditors if you will be filing bankruptcy, maybe
spend it on your attorney.

[Clabbergirl]

I'm a grad student and will receive several grand next semester, mid-Jan, left over from my student loans. In the past, these leftovers have kept me afloat. I will receive it in Jan, and again in May before it stops. What happens to this money in a BK, both 7 and 13? Is it better to file after receiving the funds so I can pay some of my creditors or negotiate for charge-offs, orfile before getting the education money?

I'm in TN which doesn't allow Fed exemptions, and I found nothing about education benefits (that I can understand). Also, I have some stocks worth today's value at approx. $850. I've been considering selling to pay for upcoming car repairs and maybe a little Christmas. Should I cash those out now, or sacrifice them to the BK? Means test said I qualify for Chp. 7, not sure if I want to. Shared ownership of home and car with ex and no equity in either.