Student Loan Borrowers Share Concerning Stories About Industry Collecting on Discharged Debt
The United States Bankruptcy Code provides important relief for debt-burdened consumers who need a fresh start to get their finances in order. This protection is particularly important for consumers who have been burdened by decades-old student debt, many of whom may have been subject to predatory practices .
For too long, a myth has persisted that student loans are not dischargeable in bankruptcy. The myth is not true because, in fact, student loans can be discharged bankruptcy. We have seen the Department of Education take important steps to ensure that bankruptcy relief is available to federal student loan borrowers. It is vital that private student loan borrowers also receive the relief the Bankruptcy Code provides —and that loan owners, lenders, servicers, and debt collectors honor that relief when a bankruptcy judge discharges a consumer’s debts.
Education Loans Can Be Discharged in Bankruptcy
It is true that many student loans can be more difficult to discharge in bankruptcy than other forms of unsecured debt; however, the Bankruptcy Code offers a more stringent standard for relief (a demonstration of “undue hardship”) and an additional step in the process (an “adversary proceeding,” which is essentially a lawsuit within the bankruptcy). But some borrowers might not be aware that discharge is still an option even with that additional and standard step.
Crucially, certain loans that borrowers might consider to be “private student loans” are exempt from this additional and standard process. Alternatively, similar to the majority of other consumer debts, certain private loans taken out for educational purposes may be eliminated during a typical bankruptcy process.
For example, like most other forms of unsecured consumer debt, a number of loans related to educational costs are dischargeable in bankruptcy. These loans for educational costs are exempt from the more stringent requirements and additional step. These loans could include, for example:
- loans that, in cases where they are paid back directly to the borrower, exceed the cost of attendance (such as tuition, books, room, and board)
- loans for the purpose of financing education at institutions not qualified for Title IV funding, such as foreign schools, unaccredited colleges, or unaccredited training and trade certificate programs
- loans taken out to pay for living expenses and other fees associated with preparing for the bar exam or other professional exams
- loans used to pay for living expenses, fees, and relocation related to a residency in medicine or dentistry
- Loans to a student attending school less than half-time.
Troubling Consumer Accounts of Industry Practices Regarding Bankruptcy Discharges
Although the average consumer may find it difficult to comprehend these details, loan owners, lenders, servicers, and collectors should be aware of them and incorporate them into their policies and procedures. Borrowers of student loans depend on their servicers to give them timely and accurate information about their loans, including the legal protections offered when they are having difficulties making loan payments, as the CFPB has long since shown. Regrettably, the CFPB’s investigations have also demonstrated how student loan providers frequently neglect to provide borrowers with the assistance and information they require.
Unfortunately, the CFPB has received complaints indicating that some of these companies may be deceiving borrowers about the protections afforded by bankruptcy, or worse, collecting on debts that a bankruptcy judge has already dismissed.
Complaints That Discharge Orders Are Being Violated
Serious concerns have been raised by consumers regarding whether student loan companies are breaking discharge orders, which would allow them to continue collecting debt even after a borrower has declared bankruptcy.
One consumer shared:
Another consumer wrote:
Another consumer wrote:
Debts that a customer no longer owes cannot be collected by student loan companies. As previously mentioned, some school loan kinds are dischargeable in bankruptcy without the need for a higher standard or the filing of an adversarial proceeding. In addition to breaking the Consumer Financial Protection Act’s ban on unfair, deceptive, and abusive practices, collecting on debts that have been discharged through bankruptcy may also go against a bankruptcy judge’s ruling in the United States.
These complaints bring up major issues regarding the methods used by lenders, collectors, servicers, and owners of private student loans, as well as how they handle bankruptcy discharges.
Has Your Loan Been Discharged?
Take into consideration the following inquiries if you have filed for bankruptcy and your private student loan debt is still being collected:
- If your loan was more than the cost of attendance, it may have been discharged. Did you take out the loan for educational expenses only for the cost of attendance (tuition, books, room, and board) or did you take out a loan that was higher than the cost of attendance?
- If the loan was taken out to cover education at an unaccredited school, a school abroad, or unaccredited programs for training and trade certificates, it may have been discharged.
- If any of the following apply to you—the cost of the board exam, fees for studying for a professional exam, living expenses while relocating for a medical or dental residency, or other expenses—your loan may have been discharged.
- Were you enrolled in school less than half-time when you took out the loan? If so, your loan may have been discharged.
Take into consideration the following actions if you believe you have been billed for a loan that has been discharged in bankruptcy:
- Keep track of the bills you’ve received and the amount you’ve paid since being declared bankrupt.
- Find and save all loan-related documents you have, such as your promissory note and any correspondence from the lender or servicer, along with any pertinent bankruptcy records that list the debt and the discharge order.
- Additionally, you have the option to file a complaint with the CFPB and include documentation pertaining to your loan to bolster your claim.
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FAQ
Can student loan holders wipe out debt through bankruptcy?
The increase followed last November’s revision of guidelines by the Biden administration, which made it simpler for student borrowers to file for bankruptcy. When borrowers meet certain requirements related to economic hardship, the government now supports their use of bankruptcy to discharge their student debt.
Does Chapter 13 cover student loans?
On the other hand, if you filed under Chapter 13, you might be eligible to make lower payments over the course of your three- to five-year plan. However, even after your consumer debts are discharged and the Chapter 13 case is concluded, you will still be required to repay student loans.
What is undue hardship for student loans?
The borrower has reached their earning potential, according to the court, and their income is insufficient to cover their family’s expenses and loan payments. A married couple has a tight budget but spends more each month than they make despite working and earning just enough to keep them above the poverty line.
Read More :
https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy