Student Loans - Are these funds considered income in bankruptcy?
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.
