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DrakeLAW, Attorney
Category: Bankruptcy Law
Satisfied Customers: 764
Experience:  Attorney at Drake Law Firm PLC
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Arizona trustee is trying to take my son's student loan money

Customer Question

Arizona trustee is trying to take my son's student loan money in chapter 7
JA: The Bankruptcy Lawyer will need to help you with this. Have you consulted a lawyer yet?
Customer: He has a lawyer who doesn't seem to want to do anything. Judge has already discharged
JA: Please give me a bit more information, so we can help you best.
Customer: Latest action: My son worked part time averaging 135.00 per week for past 11 months and received proceeds of student loan money to pay for books, supplies, gas, rent and utilities and didn't spend it all. He's very frugal. Took the rest of the money out to pay for school expenses and the bankruptcy lawyer, court and debtor classes. He is ADHD and didn't have many paper receipts. So now the lawyer is saying that the funds in his account are too intermingled and wants to settle with the trustee for payments!!!! NO NO NO My son still has to pay back the student loan.
JA: Is there anything else important you think the Bankruptcy Lawyer should know?
Customer: Not sure
JA: OK. Got it. I'm sending you to a secure page on JustAnswer so you can place the $5 fully-refundable deposit now. While you're filling out that form, I'll tell the Bankruptcy Lawyer about your situation and then connect you two.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  DrakeLAW replied 1 year ago.
Hello and welcome to JustAnswer, my name is ***** ***** I am an attorney. Please note:This is general information for educational purposes only and is not legal advice. No specific course of action is proposed herein, and no attorney-client relationship or privilege is formed by speaking to an expert on this site. This question and response may be viewed by other parties as noted in JA’s terms of service. By continuing, you confirm that you understand and agree to these terms. By continuing, you confirm that you understand and agree to these terms.I am afraid the news is not great. I think it is likely that the trustee is entitled to recover. I assume the student loan proceeds were put in his bank account and that when he filed chapter 7, that money was still in his bank account? The better question is if he had a lawyer, why the heck did the lawyer let him do that?
Customer: replied 1 year ago.
He took the money out in order to pay for the attorney, the court fees, online debtor certificates, school supplies and living expenses
Customer: replied 1 year ago.
I just found this 20 USC section 1095a(d)
Customer: replied 1 year ago.
I hope you will address this further
Expert:  DrakeLAW replied 1 year ago.
Right but that is the problem, if the money was commingled and is not directly traceable to the student loan or otherwise exempt property, then it loses its exempt status. What is the bankruptcy lawyer saying about this? The bankruptcy lawyer should be answering these questions for your son and furthermore, the bankruptcy lawyer probably should not have put your son in this position.
Customer: replied 1 year ago.
Right, it looks like the lawyer did not do his job and exempt the student loan proceeds. But, we have copies of the checks and the Federal Loan documents for the loan proceeds that match the deposits which ARE directly traceable. There wasn't that much there for them to be confused about. It is right in their face. This is what the lawyer is saying "Unfortunately it looks like to me that the student loan proceeds and paychecks are too co-mingled for us to be able to say that the withdrawal was all or mostly student loan proceeds. Please discuss with Spencer my recommendation that we try to reach a settlement with the Trustee that will require him to make payments to the Trustee." My son is LD so he does not understand why they are doing this to him. How and when he spent the proceeds are relevant. The funds are there for his use and then they have to be paid back.
Expert:  DrakeLAW replied 1 year ago.
No, that is not correct. All that matters is what was in his bank account on the day he filed bankruptcy. Was this money sitting in his bank account on that date? How and when he spent the proceeds is unfortunately not relevant unless you are talking about them wanting to get money he spent before he filed chapter 7. If you are talking about money that was in his account on the day he filed chapter 7 and those funds were commingled with his paycheck then your son is likely out of luck. It will not matter how he spent them after filing chapter 7 or that he will have to pay them back. The commingling issue is an issue of fact that the judge would have to decide. You certainly have the right to disagree with the trustee and bring the issue before the judge for a decision. You do not have to pay the trustee, it just appears it was suggested by your lawyer as a settlement. Does that sound right?
Customer: replied 1 year ago.
Yes, this is what he is suggesting for a settlement. And, I just received via email copy of letter from trustee's attorney "Order Directing Turnover of Property". Plus his tax returns of course. He does not have this money. He spent it on the bankruptcy for one and then his expenses.
Expert:  DrakeLAW replied 1 year ago.
Ok, well this I don't understand. How could he spend it on his bankruptcy? Did he not pay the bankruptcy lawyer before the bankruptcy was filed?
Customer: replied 1 year ago.
Federal Student Loan is issued to the college to pay for tuition then the college issues a check to the student for proceeds over and above the cost of tuition for the student to pay for books, class materials and living expenses. He went to an out of state community college for a welding course. Nowhere in the loan paperwork does it say that "these funds should not be co mingled". He did pay the lawyer before the bankruptcy was filed. He used some of the money to pay the lawyer, court fees and counseling course fee. He was under pressure from creditors. The lawyer neglected to advise him and to mark the funds as exempt.
Expert:  DrakeLAW replied 1 year ago.
Ok, so I understand all of this. Here is my question, how much money was in his bank account on the day he filed bankruptcy? (Also, it is not the issue of simply whether the proceeds were marked as exempt or not because that can always be fixed by filing an amendment. The issue is whether they are actually exempt or not).
Customer: replied 1 year ago.
Had conversation with his lawyer this morning. We decided to settle it. Not what we wanted, coming out of our pocket. Learned a valuable tid bit but son is still balking. Will never co-mingle again. Going to call the Company for the student loan and suggest that they add some kind of a warning so that this doesn't happen to too many more unsuspecting for any/or other possible reasons. Thank you for your input. Make it a great day.
Expert:  DrakeLAW replied 1 year ago.
Ok, yes, the problem was the commingling. It is unfortunate that it happened this way, but frankly, I blame the bankruptcy lawyer. He or she should not have filed with that much money exposed in a bank account. A settlement is probably best but I would sure ask the lawyer why they filed it that way and left that money exposed. Sorry about the outcome, but I do wish you the best of luck. Please kindly rate the question so that it may be closed.