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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 34098
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I am currently in a chapter 13 bankruptcy. I am refiling for

Customer Question

I am currently in a chapter 13 bankruptcy. I am refiling for a chapter 7 due to the fact that the car I had in the bankruptcy died and costs more to repair than it is worth. My lawyer advised me I would be paying $1600 for this. I obtained student loans the past two semesters of college to pay for daycare (I am a single parent). I know most loans are off limits during a bankruptcy (home loans, car loans, cash advances) but I had to take the student loans for school. I am active military so tuition assistance covered most of the school, the loans and grants covered the rest. I will be using the rest of the pell grant to refile the chapter 7. I know most student loans cannot be charged off when you FILE a bankruptcy, but will I be penalized for obtaining them while IN the bankruptcy. My charge off date is June of 2014. But refiling due to the situation with the car, I will be getting out of the bankruptcy. The main reason for refiling is that I am driving a very old vehicle that keeps breaking down. I have spent over 2000 repairing it so far. SO, refiling I will be able to get a reliable car after the 3 months are up. I needed to give all of the details so you could understand the situation. Will I be penalized for obtaining the loans? If so, I will not be refiling until I pay them off. If I won't, I would like to refile next pay period. My bankruptcy is out of San Antonio, TX but I live in Dayton, OH due to the military.
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 2 years ago.
I know most student loans cannot be charged off when you FILE a bankruptcy, but will I be penalized for obtaining them while IN the bankruptcy?

A: No. But, you will be stuck with the loans after your Chapter 7 is discharged. The only way to avoid this outcome is to pay off the loans. In theory, student loans can be discharged for extreme hardship, but since you obtained these loans after you filed Chapter 13, even were the loans dischargeable, they would not be dischargeable in your current bankruptcy. You would have to dismiss the current bankruptcy and then file for a new Chapter 7. This would leave you subject to your creditors claims until you refiled, which you could do immediately, but the automatic stay would terminate after 30 days. In Texas, this may not be such a bad outcome, since there are a number of exemptions from garnishment and a creditor may not be able to reach your assets before the Chapter 7 is dismissed.

However, unless you can show the undue hardship necessary to discharge the student loans, you would get no mileage out of dismissing your Chapter 13, and a conversion to Chapter 7 is the obvious alternative -- even though you will be stuck with the student loans.

Hope this helps.

NOTICE: My goal here is to entertain while educating the public about the law. I hope my answer is useful and informative to you. During our conversation, the website may ask you to rate my answer. If you rate my answer lower than the middle rating, then the website retains your entire payment, and I receive nothing. It is entirely your choice as to how you rate my answer. However, because your payment to me is in the nature of a donation/gift, rather than as compensation for any services rendered, you are entitled to know how your rating affects the final distribution of your donation.

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Customer: replied 2 years ago.
My question was if I refile, would I be penalized for the loans. You're saying NO, correct? I have NO PROBLEM paying off the loans. The scenario I was worried about is this. If you were to get a normal loan/credit card while in Bankruptcy, your case can be dismissed and you'd be subject to the debts you were trying to charge off in the first place.
Since you're telling me this is not the case, I am going to refile. The only part I am now confused on is this:

This would leave you subject to your creditors claims until you refiled, which you could do immediately, but the automatic stay would terminate after 30 days


You're telling me my creditors in my Chapter 13 would be able to come after me?

The way my lawyer explained it is this:

When I filed I had a car. It is now sitting in my garage, inoperable and too expensive to fix for over a year now. When it died, I had to pay out of pocket for a P.O.S to get me from point A to point B. The POS car has cost me over $2000 in repairs SO that is why I am converting my case. He asked me to do a budget (to include the fact I have become a mother since I filed and my expenses have gone up drastically) and then he would submit the paperwork to convert the case. It would take about 3-4 months and then I would be able to apply for a car loan to get a dependable car. That is my ultimate goal since my "once dependable" car is sitting in my garage, dead.

So if I file and do the budget, including the student loans...I will not be penalized?

And...my prior creditors could not get to me?

Just FYI, I have a total of about 8K left in debt...just to give you an idea.
Expert:  socrateaser replied 2 years ago.
My question was if I refile, would I be penalized for the loans. You're saying NO, correct? I have NO PROBLEM paying off the loans. The scenario I was worried about is this. If you were to get a normal loan/credit card while in Bankruptcy, your case can be dismissed and you'd be subject to the debts you were trying to charge off in the first place.

A: First, I question your premise that obtaining new credit during the pendency of a Chapter 13 plan risks a dismissal. The issue is whether or not your actions prejudice prepetition creditors. The student loans are nondischargeable, while in school, you have no obligation to pay, so you cannot be prejudicing your creditors. Therefore, in my view, this issue is inapplicable to your stated facts.

However, I'm not going to sit here and guarantee that a creditor or the trustee cannot find bad faith for your actions and manage to discharge your Chapter 13, rather than permit a conversion to Chapter 7.

Since you're telling me this is not the case, I am going to refile. The only part I am now confused on is this:

This would leave you subject to your creditors claims until you refiled, which you could do immediately, but the automatic stay would terminate after 30 days

You're telling me my creditors in my Chapter 13 would be able to come after me?

A: Only if you refile, rather than convert. If you convert to Chapter 7, then you have no issue, because the automatic stay remains in place.

The way my lawyer explained it is this:

When I filed I had a car. It is now sitting in my garage, inoperable and too expensive to fix for over a year now. When it died, I had to pay out of pocket for a P.O.S to get me from point A to point B. The POS car has cost me over $2000 in repairs SO that is why I am converting my case. He asked me to do a budget (to include the fact I have become a mother since I filed and my expenses have gone up drastically) and then he would submit the paperwork to convert the case. It would take about 3-4 months and then I would be able to apply for a car loan to get a dependable car. That is my ultimate goal since my "once dependable" car is sitting in my garage, dead.

So if I file and do the budget, including the student loans...I will not be penalized?

A: If you convert to Chapter 7, your assets (which apparently are nonexistent), will be liquidated and your case discharged. The student loans will remain nondischargeable, the car will be forfeit to the lender, and that will be the end of the matter. I wouldn't include the loans in the budget, because you have no current payment obligation. If you put the loans into your budget, the court can see that you have taken on new debt which has prejudiced your existing creditors. You need to be unable to pay your Chapter 13, regardless of the student loans. Otherwise, you may have a problem.

And...my prior creditors could not get to me?

A: If you convert, then yes.

Hope this helps.

NOTICE: My goal here is to entertain while educating the public about the law. I hope my answer is useful and informative to you. During our conversation, the website may ask you to rate my answer. If you rate my answer lower than the middle rating, then the website retains your entire payment, and I receive nothing. It is entirely your choice as to how you rate my answer. However, because your payment to me is in the nature of a donation/gift, rather than as compensation for any services rendered, you are entitled to know how your rating affects the final distribution of your donation.

If you need to contact me again, please put my user id at the beginning of your question ("ToCustomerquot;), and the system will send me an alert. Please Click the following link for IMPORTANT LEGAL INFORMATION. Thanks and best wishes!

Customer: replied 2 years ago.
Ok. Now I think we're on the same page. I do not have to begin paying back my student loans until next year sometime. So, I will not include them in the budget. I did not take on any other debt/credit/loans while in this bankruptcy. I didn't mean to use "refile" and "convert" interchangeably. I meant, convert. My intention was only to convert to a Chapter 7. So, by not including the loans and doing the budget with my current bills (typical things like utilities, insurance, daycare) I should be ok, correct? I just want to make sure I don't get myself into a HUGE hole by trying to do the right thing. the ONLY reason I took the loans to begin with were due to excess daycare costs while I was in class.
Expert:  socrateaser replied 2 years ago.
The reason for taking out the loans in my view is irrelevant. The issue is whether or not you have added a new obligation that could prejudice your creditor's rights. If your obligation to pay begins within the term of the Chapter 13 plan, then you are prejudicing your creditor's rights, unless you can show that your current circumstances, regardless of the loans has created changed circumstances whereby you cannot make your payments under the current plan.

If you cannot show that the current plan, regardless of the new loans, is unsustainable, then you may have a problem. The court must resolve the question by trying to ascertain whether the best interests of the creditors is advanced more through a dismissal than a conversion. If yes, then the court must dismiss, otherwise convert.

Assuming you have no assets and no ability to pay the plan, then there is nothing to be gained by a dismissal, and the court will convert to Chapter 7.

Hope this helps.

NOTICE: My goal here is to entertain while educating the public about the law. I hope my answer is useful and informative to you. During our conversation, the website may ask you to rate my answer. If you rate my answer lower than the middle rating, then the website retains your entire payment, and I receive nothing. It is entirely your choice as to how you rate my answer. However, because your payment to me is in the nature of a donation/gift, rather than as compensation for any services rendered, you are entitled to know how your rating affects the final distribution of your donation.

If you need to contact me again, please put my user id at the beginning of your question ("ToCustomer), and the system will send me an alert. Please Click the following link for IMPORTANT LEGAL INFORMATION. Thanks and best wishes!

Customer: replied 2 years ago.
I never meant dismissal, I only meant conversion.
Expert:  socrateaser replied 2 years ago.
That's fine, but it doesn't change the answer. I get the feeling that you are looking for a different answer, and I'm not sure what else to offer.

If your creditors have already received (or will receive) at least as much as they would have received had you originally filed a Chapter 7, then I believe that you will have no problem with the conversion, regardless of whether or not you identify the new debt in your budget, because there would be no prejudice to the creditors caused by the new debt undertakings. Creditors are never entitled to more than they would have received were a debtor to file a Chapter 7.

Hope this helps.

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