Bankruptcy to get rid of student loans? Forum

[dresden doll]

There was a thread on here not too long ago where a guy was considering taking the equity out of his house, paying for law school with said equity and thus circumventing the non-dischargeable nature of student debt. Can't find the thread, but I don't think there was a consensus. I suppose it could work if you paid tuition in one lump sum because you would then be paying back a home equity loan and not student loans. I dunno.

I don't see what the problem with this is, off the top of my head. This seems like a totally different thing than the OP's plan (which is fraudulent).

The equity in a home was previously cash of the homeowner, so I don't see how it's different from selling stocks that you own to pay off student loans. If there was a problem, it'd be with your mortgagee, but defaulting on that just leads to foreclosure.

(Of course, I really have no idea.)

Your assuming he had the $ for the house. He could have just put
Your typical 10% down or whatever, took a 2nd mortgage, and then waddles himself into C&F issues

Isn't equity $?

N/m, I reconsidered and now understand what you're getting at. I nonetheless highly doubt he'd run into C and F issues. People can shift their money to a large extent just as they choose.

[dixiecupdrinking]

This definitely will not work. Not entirely sure of all the mechanisms that would prohibit it but Bankruptcy Code § 727(a) is a start.

Never studied bankruptcy, but I don't see what you're seeing there.

(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—
(A) property of the debtor, within one year before the date of the filing of the petition;

(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs;

Those are some subsections that might be relevant. The creditor in question in a bankruptcy case would be the credit card company. By getting a large cash advance and then transferring it to pay off the student loans, the debtor would arguably be violating (2)(A). If he denied it, then you're getting into subsection (4) stuff there. But I dunno. My understanding is that bankruptcy courts have pretty broad equitable powers to dismiss the case and/or not discharge the debt if they smell a rat. Plus you might get into voidable preferences and things like that.

[ben4847]

This definitely will not work. Not entirely sure of all the mechanisms that would prohibit it but Bankruptcy Code § 727(a) is a start.

Never studied bankruptcy, but I don't see what you're seeing there.

(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—
(A) property of the debtor, within one year before the date of the filing of the petition;

(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs;

Those are some subsections that might be relevant. The creditor in question in a bankruptcy case would be the credit card company. By getting a large cash advance and then transferring it to pay off the student loans, the debtor would arguably be violating (2)(A). If he denied it, then you're getting into subsection (4) stuff there. But I dunno. My understanding is that bankruptcy courts have pretty broad equitable powers to dismiss the case and/or not discharge the debt if they smell a rat. Plus you might get into voidable preferences and things like that.

I thought you might be referring to that. I think that is aimed at people who are hiding assets by giving them away to relatives and friends--not to other creditors.

[IAFG]

Factors Considered in Finding Abuse
In determining whether a case should be dismissed under the totality of the circumstances, courts have tested the evidence against the following factors:
(1) circumstances surrounding the debtor's finances, including an ability to pay creditors, whether the debtor's budget is excessive, whether the debtor has reaffirmed a large amount of secured debt, whether there was an incurrence of cash advances or excessive consumer purchases in contemplation of filing, and whether the debtor has a stable income;
(2) the debtor's truthfulness, including whether the schedules accurately reflected the debtor's true financial condition and whether the debtor filed in good faith; and
(3) other factors related to the reason or need for filing, such as whether the petition was filed due to unforeseen circumstances including illness, calamity, disability, or unemployment, and whether the debtor could have negotiated with creditors outside of bankruptcy.

In re Daugherty, 416 B.R. 582, 588.

Courts are well aware of the public policy concerns that brought about nondischargeable student loans and are not gonna ignore that when contemplating fraud in a case like this. Like dixie noted, these are courts of equity. They're happy to cut through your bullshit and determine fraudulent intent if your story doesn't smell right.

[ben4847]

Factors Considered in Finding Abuse
In determining whether a case should be dismissed under the totality of the circumstances, courts have tested the evidence against the following factors:
(1) circumstances surrounding the debtor's finances, including an ability to pay creditors, whether the debtor's budget is excessive, whether the debtor has reaffirmed a large amount of secured debt, whether there was an incurrence of cash advances or excessive consumer purchases in contemplation of filing, and whether the debtor has a stable income;
(2) the debtor's truthfulness, including whether the schedules accurately reflected the debtor's true financial condition and whether the debtor filed in good faith; and
(3) other factors related to the reason or need for filing, such as whether the petition was filed due to unforeseen circumstances including illness, calamity, disability, or unemployment, and whether the debtor could have negotiated with creditors outside of bankruptcy.

In re Daugherty, 416 B.R. 582, 588.

Courts are well aware of the public policy concerns that brought about nondischargeable student loans and are not gonna ignore that when contemplating fraud in a case like this. Like dixie noted, these are courts of equity. They're happy to cut through your bullshit and determine fraudulent intent if your story doesn't smell right.

Again, that is aimed at people abusing the system by buying tons of stuff and then filing. OP is going to pay off legitimate other debt.

[IAFG]

Factors Considered in Finding Abuse
In determining whether a case should be dismissed under the totality of the circumstances, courts have tested the evidence against the following factors:
(1) circumstances surrounding the debtor's finances, including an ability to pay creditors, whether the debtor's budget is excessive, whether the debtor has reaffirmed a large amount of secured debt, whether there was an incurrence of cash advances or excessive consumer purchases in contemplation of filing, and whether the debtor has a stable income;
(2) the debtor's truthfulness, including whether the schedules accurately reflected the debtor's true financial condition and whether the debtor filed in good faith; and
(3) other factors related to the reason or need for filing, such as whether the petition was filed due to unforeseen circumstances including illness, calamity, disability, or unemployment, and whether the debtor could have negotiated with creditors outside of bankruptcy.

In re Daugherty, 416 B.R. 582, 588.

Courts are well aware of the public policy concerns that brought about nondischargeable student loans and are not gonna ignore that when contemplating fraud in a case like this. Like dixie noted, these are courts of equity. They're happy to cut through your bullshit and determine fraudulent intent if your story doesn't smell right.

Again, that is aimed at people abusing the system by buying tons of stuff and then filing. OP is going to pay off legitimate other debt.

Why does that make it inapplicable? He's racking up consumer debt with the intent, pre-petition, to file. A court will look at those pre-petition actions.

[nleefer]

Incurring debt with no intent to repay it is fraudulent and courts will deny discharge of that debt. Furthermore, credit card "kiting" schemes (using new credit cards to make payments on old ones) are well established as fraud. The OP's plan is basically the same thing, and I can't imagine that a bankruptcy court would grant a discharge of credit card debt incurred to pay off students loans with the intent of trying to discharge it. As a result you'd be stuck with credit card debt at ~30% interest instead of student loan debt at ~7%. Seems like a bad idea.

[IAFG]

Incurring debt with no intent to repay it is fraudulent and courts will deny discharge of that debt. Furthermore, credit card "kiting" schemes (using new credit cards to make payments on old ones) are well established as fraud. The OP's plan is basically the same thing, and I can't imagine that a bankruptcy court would grant a discharge of credit card debt incurred to pay off students loans with the intent of trying to discharge it. As a result you'd be stuck with credit card debt at ~30% interest instead of student loan debt at ~7%. Seems like a bad idea.

You definitely can use cash advances for student loans and discharge them (Santa Fe Medical Services, Inc. v. Segal 57 F.3d 342) but this guy's going to have issues because of the bad faith filing and fraudulent intent. Unless he somehow regularly takes out hundreds of thousands in cash advances to maintain his lifestyle, the court's going to figure out pretty quickly the motive and rule on it based on the totality of the circumstances.

[AVBucks4239]

The federal government wants it's money like a normal creditor.
The difference is that the federal government can garnish your wages in order to get their money unlike a normal creditor.

I worked in collections. "Normal" creditors can garnish your wages in every state other than Pennsylvania, South Carolina, and Texas.

The difference between the federal government and a normal creditor is that the feds know exactly where you work because of tax filings, whereas a normal creditor has to labor and figure it out.

[dresden doll]

Why does that make it inapplicable?

Because he's playing stupid.

[ToTransferOrNot]

Jesus, some of the people in this thread are hilarious.

The fact that the credit card debt is being taken out to pay off a legitimate debt is irrelevant. Courts look at whether you had a "fraudulent intent" when you took out the cash advances. Taking out 20%+ loans to pay off 6-8.5% loans is going to get you smacked with "fraudulent intent", unless you can spin up a really good story about how you were going to be able to pay off the advance during a 0% period and then something got fucked up (and you'll have to have documentation to prove that). Even if you COULD make that showing, you would probably still be screwed.

lol at the people in this thread who think otherwise.

And by the way: it's not just "no discharge" that would probably flow from this. There are crimes that focus on abuse of the bankruptcy process. They carry substantial jail terms. A bankruptcy judge has the authority to refer your fradulent scheme to DOJ for prosecution.

ETA: The government is different from other creditors because it can garnish with far less process, and it can garnish a broader range of income sources.

[ben4847]

Jesus, some of the people in this thread are hilarious.

The fact that the credit card debt is being taken out to pay off a legitimate debt is irrelevant. Courts look at whether you had a "fraudulent intent" when you took out the cash advances. Taking out 20%+ loans to pay off 6-8.5% loans is going to get you smacked with "fraudulent intent", unless you can spin up a really good story about how you were going to be able to pay off the advance during a 0% period and then something got fucked up (and you'll have to have documentation to prove that). Even if you COULD make that showing, you would probably still be screwed.

lol at the people in this thread who think otherwise.

Again, I dunno nothin about bankruptcy. I just know how to read a statute.
Section 727 is talking about people who transfer money out of their possession in contemplation of bankruptcy. That is very different from what OP is doing.
That Daugherty case seemed aimed at people who spend and consume extravagantly in contemplation of filing. Also very different.

Sure, the idea sounds fishy, and there ought to be a law about it, and there very likely is. I'm just commenting that I don't know that its been presented yet.

Also, if you change the facts just a bit, it sounds a lot better. Suppose you consolidate your loans at a lower rate, and then file a year later? That sounds ok.
So suppose you get a low intro rate on the credit card, and actually make payments for a year until the rate increases? Maybe.

[dresden doll]

Again, I dunno nothin about bankruptcy.

That much is blindingly apparent. Do you know anything about the phrase 'court of equitable powers'?

[CanadianWolf]

OP: If your credit is good enough to qualify for over $100,000 unsecured credit card cash advances, then you should have no problem repaying your student loans on a typical repayment schedule.

[IAFG]

Jesus, some of the people in this thread are hilarious.

The fact that the credit card debt is being taken out to pay off a legitimate debt is irrelevant. Courts look at whether you had a "fraudulent intent" when you took out the cash advances. Taking out 20%+ loans to pay off 6-8.5% loans is going to get you smacked with "fraudulent intent", unless you can spin up a really good story about how you were going to be able to pay off the advance during a 0% period and then something got fucked up (and you'll have to have documentation to prove that). Even if you COULD make that showing, you would probably still be screwed.

lol at the people in this thread who think otherwise.

Again, I dunno nothin about bankruptcy. I just know how to read a statute.
Section 727 is talking about people who transfer money out of their possession in contemplation of bankruptcy. That is very different from what OP is doing.
That Daugherty case seemed aimed at people who spend and consume extravagantly in contemplation of filing. Also very different.

Sure, the idea sounds fishy, and there ought to be a law about it, and there very likely is. I'm just commenting that I don't know that its been presented yet.

Also, if you change the facts just a bit, it sounds a lot better. Suppose you consolidate your loans at a lower rate, and then file a year later? That sounds ok.
So suppose you get a low intro rate on the credit card, and actually make payments for a year until the rate increases? Maybe.

Yes, if you change the facts so the intend isn't obviously fraud, it does sound better. I tried to explain one of the fraud tests to you, but you insist on not understanding. There's another case about a guy using cash advances to pay down his "homestead" mortgage and getting his ass nailed to the wall, but it doesn't really matter. The point is, the court is going to look at why you took on that consumer debt, and if it was with fraudulent intent. I can't think of many ways you could muddy up the facts to not get busted here, and all of the things I could think of involve regular massive transactions.

ETA: the debt resulting from the consolidation of student loans has been ruled to be still non-dischargable student debt.

[Fark-o-vision]

If we're talking about simply getting away with it, then of course you could get away with it. You do it over a couple of years, make payments for 6-9 months, default on the loans, enter a payment plan for another 6 months or so, default on that, move around every year and in two or three years you file. Creditors won't show up, courts won't have any idea what kind of mess you've gotten, and you just look like a deadbeat.

As for fraud, seems weird to prove. I know nothing about proving fraud, but if you go along the lines of you were dumping so much money into student loans that you ended up living on credit cards (which no one can say you weren't using your credit that way) doesn't that just make you stupid, not fraudulent?

Still, seems like the wrong forum for trying to figure out how to become a lying
(possibly perjured) morally bankrupt criminal, but maybe not?

Also, I didn't say the plan was good, or advantageous, or that it even made you come out ahead. I just said that, if you were willing to lie and steal, it would probably work. Still a terrible idea.

[CanadianWolf]

Repaying the credit card debt for a couple of years could negate fraudulent intent, but the credit card payments are likely to be much higher than fixed rate student loan payments. (The zero (0%) percent interest on new credit cards usually does not apply to cash advances--although it may to balance transfers.) In short, you could argue that stupidity is not a crime.

[CanadianWolf]

OP: Although you present an interesting question, the reality is that most jobs require a credit check. Bankruptcy, for other than emergency medical bills possibly, could lock one out of many careers for 7 to 10 years.

[ben4847]

Jesus, some of the people in this thread are hilarious.

The fact that the credit card debt is being taken out to pay off a legitimate debt is irrelevant. Courts look at whether you had a "fraudulent intent" when you took out the cash advances. Taking out 20%+ loans to pay off 6-8.5% loans is going to get you smacked with "fraudulent intent", unless you can spin up a really good story about how you were going to be able to pay off the advance during a 0% period and then something got fucked up (and you'll have to have documentation to prove that). Even if you COULD make that showing, you would probably still be screwed.

lol at the people in this thread who think otherwise.

Again, I dunno nothin about bankruptcy. I just know how to read a statute.
Section 727 is talking about people who transfer money out of their possession in contemplation of bankruptcy. That is very different from what OP is doing.
That Daugherty case seemed aimed at people who spend and consume extravagantly in contemplation of filing. Also very different.

Sure, the idea sounds fishy, and there ought to be a law about it, and there very likely is. I'm just commenting that I don't know that its been presented yet.

Also, if you change the facts just a bit, it sounds a lot better. Suppose you consolidate your loans at a lower rate, and then file a year later? That sounds ok.
So suppose you get a low intro rate on the credit card, and actually make payments for a year until the rate increases? Maybe.

Yes, if you change the facts so the intend isn't obviously fraud, it does sound better. I tried to explain one of the fraud tests to you, but you insist on not understanding. There's another case about a guy using cash advances to pay down his "homestead" mortgage and getting his ass nailed to the wall, but it doesn't really matter. The point is, the court is going to look at why you took on that consumer debt, and if it was with fraudulent intent. I can't think of many ways you could muddy up the facts to not get busted here, and all of the things I could think of involve regular massive transactions.

ETA: the debt resulting from the consolidation of student loans has been ruled to be still non-dischargable student debt.

That case is also way different. Paying down your homestead mortgage is transferring the money to yourself in a way that will be protected from creditors.

I do insist on not understanding.

[Aberzombie1892]

Your credit card debt used to pay of the student loans would then become non-dischargeable (because it was used on non-dischargeable debt).

[Unitas]

1. Use credit cards to sustain all lifestyle for two years
2. Use every dollar of salary to pay off school debt and minimum payment to credit cards
3. Bankruptcy after paying off all school debt using salary
3(b). Hope Judge thinks you have a “superior legal mind” and goes easy on you. See 11 U.S.C. 105.
4. Profit in new bankruptcy filing by showing you should be able to discharge student loan debt because payment of the debt will impose an undue hardship on you because of your clearly “superior legal mind” that thinks it is going to get around Bankruptcy Judges, creditors, and the world with such a wonderful plot which could result in you never practicing as a lawyer.

BTW, this is not legal advice and this thread is just for laughing at.

[jurisx]

You can't use credit cards to pay off your student loans.

You can use anything to pay off student loans and can buy anything on credit cards.

"Cash Advance" at an ATM and then money order a payment to them if you have to, there done.
(not that Sallie Mae will deny the direct card payment anyways)

Heck use Discover and get cash back for like a thousand gift cards to Red Lobster and IHOP.

[jurisx]

Why not just default on the student loan? Your credit is ruined either way.
In the unlikely event you actually have the credit worthiness to get a credit card(s) that has a high enough limit to allow you to pay off your debt, if you don't pay the credit card you will ruin your credit. If it's in bankruptcy that's a minimum of 7 years. Ironically, you will have to find the money to pay the bankruptcy attorney.

But you would do better just calling the student loan lender and telling them you don't have a job or any way to pay them and attempt to have the loan placed in forbearance or have the payments set up so that you're only paying the interest, or even only paying a small percentage of whatever salary you may come by.

Bottom line is--the credit card thing is just not realistic. Bankruptcy is not automatic. It's a process that involves a judge determining the circumstances that led you to need to claim bankruptcy. I'm pretty sure they're going to see right through the credit card scam. But, they could still prevent you from going bankrupt and force you to pay off a portion of the credit card debt, which undoubtedly will have a much higher interest rate than your student loans (federal not necessarily private).

You are putting the horse before the cart. The bad credit dosn't come until you F it up.(Duh)

Everyone in college should have perfect credit. I know my score is like top 10% in the nation according to the 3 agencies that are in charge on it. Everyone has great credit before bad. (Duh)

[jurisx]

O what a scholar

Never studied bankruptcy, but I don't see what you're seeing there.

(a) The court shall grant the debtor a discharge, unless—
(1) the debtor is not an individual;
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—
(A) property of the debtor, within one year before the date of the filing of the petition; or
(B) property of the estate, after the date of the filing of the petition;
(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case;
(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs;
(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor’s liabilities;
(6) the debtor has refused, in the case—
(A) to obey any lawful order of the court, other than an order to respond to a material question or to testify;
(B) on the ground of privilege against self-incrimination, to respond to a material question approved by the court or to testify, after the debtor has been granted immunity with respect to the matter concerning which such privilege was invoked; or
(C) on a ground other than the properly invoked privilege against self-incrimination, to respond to a material question approved by the court or to testify;
(7) the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act, concerning an insider;
(8) the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition;
(9) the debtor has been granted a discharge under section 1228 or 1328 of this title, or under section 660 or 661 of the Bankruptcy Act, in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totaled at least—
(A) 100 percent of the allowed unsecured claims in such case; or
(B)
(i) 70 percent of such claims; and
(ii) the plan was proposed by the debtor in good faith, and was the debtor’s best effort;
(10) the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter;
(11) after filing the petition, the debtor failed to complete an instructional course concerning personal financial management described in section 111, except that this paragraph shall not apply with respect to a debtor who is a person described in section 109 (h)(4) or who resides in a district for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved instructional courses are not adequate to service the additional individuals who would otherwise be required to complete such instructional courses under this section (The United States trustee (or the bankruptcy administrator, if any) who makes a determination described in this paragraph shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter.); or
(12) the court after notice and a hearing held not more than 10 days before the date of the entry of the order granting the discharge finds that there is reasonable cause to believe that—
(A) section 522 (q)(1) may be applicable to the debtor; and
(B) there is pending any proceeding in which the debtor may be found guilty of a felony of the kind described in section 522 (q)(1)(A) or liable for a debt of the kind described in section 522 (q)(1)(B).

POST ON THE BOTTOM!@@!!!

[jurisx]

Your credit card debt used to pay of the student loans would then become non-dischargeable (because it was used on non-dischargeable debt).

Says what court precdent? This sounds like assumption.