This question seems to come up a lot in my conversations with people, especially those working and going to school. The concern is that if student loan funds that are deposited into a bank account are counted as income for purposes of qualifying for chapter 7 bankruptcy relief. Keep in mind that nothing in this blog should be relied upon as legal advice. Every situation is different and should be analyzed in detail by a professional.

The reason the question comes up is because in prior posts and information on my website at www.legalhelpers.com I mention that to qualify for chapter 7 relief, generally, the debtor shouldn’t have much if any ability to repay creditors. I’ve also discussed the “means test” under the law which was Congress’ attempt at an objective test to determine whether a debtor has an ability to pay.

The answer is that borrowed money is not income. If you borrow money from a student loan agency you are not getting issued a 1099 or W2 at the end of the year and you do not have to include that money in your taxable income. Thus, in a bankruptcy case I would NOT include money I received from a loan as income in my budget or with respect to the means test.

I get a lot of inquiries from people asking about credit dispute letters. A lot of us are forced to deal with credit report inaccuracies. Sometimes the reports are inaccurate because they don’t reflect a bankruptcy discharge and that the balance is zero, or sometimes the reports mix up names, etc…

Whatever the reason, if the report is inaccurate, there are procedures for getting them corrected. The Federal Trade Commission (FTC) is the governmental agency charged with the responsibility of enforcing the Fair Credit Reporting Act (FCRA). The FTC maintains a very informative website with a lot of information about FCRA requirements, see www.ftc.gov.

When you discover that your credit report is inaccurate, the first step is to send a letter to the credit reporting bureau who issued the report disputing the inaccurate information. This is called a “dispute letter.” The FTC’s website has a sample dispute letter. The letter should be tailored to your specific situation, but the sample letter is a good starting point. You can also hire a firm or organization to dispute the errors for you. Of course, you’ll have to pay fees. My firm has recently begun offering some post-discharge credit report dispute services for our clients.

Several people have posted questions to our website regarding whether it is possible to get an extension of the October 17, 2005 deadline to file cases under the “old” law. Unfortunately, the answer is no. Congress enacted the Consumer Protection and Bankruptcy Abuse Prevention Act in April, 2005 and most of the provisions did not go into effect until October 17, 2005.

There were no provisions in this legislation to apply to the courts or any administrative body to extend the effective date or to postpone any of the provisions of the law. The bottom line is that if you need to file bankruptcy now, you still can, but you will have to comply with the “new” law.