Private Student Loans in Default: Settlement or SOL?

Student loans companies are finally starting to offer borrowkeithd05/10/12
It seems that waiting for the SOL to expire is a better bet.mordecai05/10/12
I have seen this too. If anyone does do this, make sure youbigsal05/10/12
Did you send a dispute/validation letter in writing within 3bigsal05/10/12
Regardless of the rights (or lack thereof) in bankruptcy forqdllc03/18/13
I would personally wait out the SOL. Then after that offer $cattleprod05/10/12
Forgiven debt is not taxable to the extent you were insolvenonehell05/10/12
Keith- If you default, would you lose your law license?mordecai05/10/12
He is already in default. He is within 1 year of the SOL.cattleprod05/10/12
I don't think he would lose his license. Defaulted *Federalonehell05/10/12
Right, state bars don't check the credit of their members. keithd05/10/12
I would just wait out the sol. If you make any arrangementsdigitalserf05/10/12
Credited.keithd05/10/12
I need the original promissory notes for my loans so I can fmnem05/10/12
You actually don't need these for that purpose. If all you'keithd05/10/12
Took loans out in state A and am now in california. Regardlemnem05/10/12
No. States apply their own SOL. The only exception is whenkeithd05/10/12
Hmmm. So that just means I need to figure out whn they went mnem05/10/12
Yes, that is correct. If your private student loans went inkeithd05/10/12
Sucktastic. Ah well. I was pushed into a decision today by tmnem05/10/12
Wait out the SOL-imo, they are trying to bait you. Your dopesmokeresquire05/10/12
Credited.keithd05/10/12
+1 SOLs are such fun (sic) to mess with. Lots of stuff iqdllc10/25/12
Have you checked into the loans dischargeability in bankruptmotionsick105/10/12
I think you're thinking of the pre-2005 bankruptcy code. Inkeithd05/10/12
No, that is still the current state of the law. It is very motionsick105/10/12
I'll bet you would be surprised to learn that the arm of Acconehell05/10/12
Good info. How do you think the SOL applies to a student, whlrsthmp05/16/12
I have two private loans with chase bank for about 30K that ingraffia10/24/12
Why would you hire an attorney for this? That is crazy. cattleprod10/24/12
Hello, Question regarding SOL, Private Student loans and kristidt03/15/13
You are correct about 6 years for the state of Washington. cattleprod03/15/13
Actually, the state statute of limitations was tolled duringonehell03/15/13
But in reality, it all depends on who owns the debts now. Ifcattleprod03/15/13
The bond market is ready to melt down unless interest rates boojee03/16/13
Keithd, what did you decide? I am in a similar situation. Gmystified05/31/13
I haven't paid these people a dime in almost 4 years. Will keithd05/31/13



keithd (May 10, 2012 - 11:02 am)

Student loans companies are finally starting to offer borrowers in default settlements on their loans instead of demanding payment in full. I guess the realities of the economy have finally caught up to them and they finally realize that someone doesn't have 100k laying around just because they have a law degree. What is the credited approach to dealing with a defaulted private student loan then? Is it better to accept a reasonable settlement offer, or to wait out the statute of limitations so that the loan becomes essentially uncollectable? In my present situation, I am about a year away from the SOL being run, and I am being contacted about a settlement offer, which may or may not be reasonable. Not sure if I should entertain the offer or simply continue to ignore all collectors and wait for the SOL to expire.

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mordecai (May 10, 2012 - 11:27 am)

It seems that waiting for the SOL to expire is a better bet. I've seen people pay settlement offers for credit card companies only to have the credit card companies continue to hound them.

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bigsal (May 10, 2012 - 11:29 am)

I have seen this too. If anyone does do this, make sure you get the agreement in writing before giving them a cent or admitting ownership of the debt.

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bigsal (May 10, 2012 - 11:29 am)

Did you send a dispute/validation letter in writing within 30 days of receiving their first dunning letter? If not and if you are still within the initial 30 days, do it now. That will buy you a couple of months while they validate. If they can't, then they can't continue collections. Save some money up during this time.

After that, you can string them out until the SOL has passed or offer them a settlement. I would wait out the SOL if it were me.

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qdllc (Mar 18, 2013 - 8:57 am)

Regardless of the rights (or lack thereof) in bankruptcy for borrowers, creditors know that 0% of $1,000,000 is still $0. Better to work out a deal the borrower can pay and will agree to than to demand their "rights" and ultimately spend more than they ever recover.

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cattleprod (May 10, 2012 - 11:58 am)

I would personally wait out the SOL. Then after that offer $0.00 and just work and getting everything deleted from your credit reports.

If you owe $100,000 and they agree to accept $10,000 then they will send you a 1099C for $90,000 in misc income based on the forgiven amount of debt. So you now have a huge tax bill to the IRS.

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onehell (May 10, 2012 - 1:03 pm)

Forgiven debt is not taxable to the extent you were insolvent. Any grad young enough to be posting on here is unlikely to see any tax bill out of it. See IRS Form 982.

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mordecai (May 10, 2012 - 12:10 pm)

Keith- If you default, would you lose your law license?

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cattleprod (May 10, 2012 - 12:24 pm)

He is already in default. He is within 1 year of the SOL.

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onehell (May 10, 2012 - 1:08 pm)

I don't think he would lose his license. Defaulted *Federal* student loans and unpaid child support can get your license yanked in some states, but I've never heard of a license already obtained being revoked for unpaid PRIVATE student loans. Seeking admission in a new jurisdiction could be problematic though.

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keithd (May 10, 2012 - 2:21 pm)

Right, state bars don't check the credit of their members. You can pretty much do everything short of some Bernie Madoff shit once you're in, and you won't get kicked out of the bar. My guess is that tons of solos have trashed their credit. But getting IN to a new state bar would be virtually impossible with bad credit, including defaulted private loans.

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digitalserf (May 10, 2012 - 1:12 pm)

I would just wait out the sol. If you make any arrangements, then the sol starts all over again.

The only caveat, is if they offer you some ridiculously low amount which is a "payment in full". As they cannot back at you later on, then it might be worth considering just to get them off your back.

I would investigate the law in your state to fully assess your options.

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keithd (May 10, 2012 - 2:19 pm)

Credited.

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mnem (May 10, 2012 - 1:15 pm)

I need the original promissory notes for my loans so I can figure out what state's jurisdiction they fall under. Sigh.

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keithd (May 10, 2012 - 2:16 pm)

You actually don't need these for that purpose. If all you're trying to figure out is the SOL, then look to your state's laws, and research the case law in your state to be sure that your state views the SOL as procedural law, and thus not impacted by the choice of law provisions in your student loan contract. Most states view SOL as procedural and apply their own SOL instead of the state that is mentioned in the contract. Otherwise every credit card in the country would have an SOL of 20 years, because every cardholder agreement chooses Ohio or equivalent as the state whose laws the contract is governed under. SOL stuff is well litigated. Use Google Scholar if you need a free resource to research case law.

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mnem (May 10, 2012 - 2:23 pm)

Took loans out in state A and am now in california. Regardless of contractual choice of law provisions, wouldn't the loans carry State A SOLs instead of California?

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keithd (May 10, 2012 - 4:03 pm)

No. States apply their own SOL. The only exception is when the cause of action accrued in another state and the SOL in that state ran before the defendant moved. At that point, most states will borrow the SOL of the state where the cause of action accrued in order to prevent plaintiffs from bringing stale litigation to court just because the defendant happened to move.

So in your case, unless the SOL was already up in State A when you moved to CA, CA will apply its own SOL, but if CA is like most states, it will start the clock from the time you moved into the state. Otherwise you could have a situation where defendant lives in a state with a 6 year SOL, 4 years go by from the cause of action accruing, and then defendant moves to a state with a 3 year SOL and claims that any lawsuit is time barred. That would be a pretty sleazy move, which is why "State B" in those situations won't count time towards the SOL before you move into the state.

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mnem (May 10, 2012 - 4:06 pm)

Hmmm. So that just means I need to figure out whn they went bust and calculate from there. Ca is four yrs and I might be about a year or so out. Hilarious.

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keithd (May 10, 2012 - 7:45 pm)

Yes, that is correct. If your private student loans went into default after you had already moved to California, and you've lived in CA continuously since that time, it's really a pretty simple calculation: date of default plus 6 years.

Unfortunately some CA court decided that even though CA has an SOL of 4 years for every other debt, it should be 6 years for private student loans. See TERI v. Yokoyama (2008).

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mnem (May 10, 2012 - 9:38 pm)

Sucktastic. Ah well. I was pushed into a decision today by the Foreign Service. I'm going through security clearance and they frown on unresolved debt. So today, I pulled the trigger on some decisions I'd been pondering for the last few weeks.

I settled a $2800 for $1500 and will cut that check next week. I negotiated a low payment rate for my bar loan. I'm in settlement negotiations on my Access loans and, if my dad will bum me a couple grand, can settle for probably 35-40% with easy payments. Then I'll be able to make payments on the nasty federal chunk.

All of these things will show the security investigator that I'm not an irresponsible ass dodging my obligations. I was going to make these decisions, he just made me pull the trigger on them a few weeks earlier than I intended.

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dopesmokeresquire (May 10, 2012 - 1:33 pm)

Wait out the SOL-imo, they are trying to bait you.

Your credit is already trashed. Will paying them 50K over the next 20 years, as opposed to 100K make your credit better? Don't think so. Besides, once YOU contact them...nothing prevents them from revoking their offer to settle, but your SOL is blown.

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keithd (May 10, 2012 - 2:17 pm)

Credited.

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qdllc (Oct 25, 2012 - 8:20 am)

+1

SOLs are such fun (sic) to mess with. Lots of stuff is done to try and "reset the clock" and creditors want that.

Even if money is tight, if a creditor came to me and offered to "settle" my debt, I'd run it through a lawyer who would ensure nothing is said, done, or signed that could be used to reset the SOL clock.

It's a key reason I hate talking to any creditor on the telephone. They don't record the call for "quality assurance." They record them so if they can trick you into saying something that helps them, they have it on record.

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motionsick1 (May 10, 2012 - 1:59 pm)

Have you checked into the loans dischargeability in bankruptcy?

Certain private loans do not fall under the exception to discharge if they were not funded in whole or in part by a nonprofit institution.

The problem usually comes in because many, but not all, of these loans are sold to non-profit servicers which means that even though a for-profit bank funds the loan, it can be nondischargeable if the loan was made under a program administered/funded/etc. by a nonprofit institution. There is case law in the Ninth Circuit and elsewhere that if the nonprofit “buys” the loan from the bank under such a program, the loan is excepted. See HEMAR Service Corp. of America v. Pilcher 149 B.R. 595, 596 (B.A.P. 9th Cir. 1993); In re Segal, 57 F3d 342, 346 (Cir. 1995); In re McClain, 272 B.R. 42 (Bankr. D.N.H. 2002) (“Congress used expansive language in its designation of which student loans are non-dischargeable, indicating that the program pursuant to which the loan was made must be funded in part by a non-profit entity, not the loan itself.”).

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keithd (May 10, 2012 - 2:18 pm)

I think you're thinking of the pre-2005 bankruptcy code. In 2005 the law was revised again to make sure that no student loans are dischargeable in bankruptcy.

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motionsick1 (May 10, 2012 - 2:58 pm)

No, that is still the current state of the law. It is very unlikely that they are dischargeable, but USC 11 sec 523(a)(8) is limited in its application to loans made, insured or guaranteed by a governmental unit or under a program made, insured or guaranteed by a governmental unit (federal or state), or a non profit. If the loan is truly a PRIVATE loan, with NO government or non profit funds, then it is not barred from discharge by 523(a)(8). The real question is, what is the source of funding for the loan sought to be discharged. This may not be immediately apparent from the loan paperwork

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)
(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

The problem for me is section B. The IRS language is pretty broad allowing for the interest deduction on student loans(unless it is a student loan from a family member or something like that). I hear the case law is convoluted, but it might be worth looking at. I have heard attorneys an attorney claim that truly private loans are dischargeable.


"(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;"

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onehell (May 10, 2012 - 6:44 pm)

I'll bet you would be surprised to learn that the arm of Access Group that made private student loans was a nonprofit. I choose them as an example since they were always one of the biggest private lenders for JDs, but the same is true of pretty much all the private lenders - they're technically nonprofit and thus you can't discharge w/out the usual draconian undue hardship proceeding. Believe me, they aren't that dumb. They create 501c3s to actually make the loans.

http://en.wikipedia.org/wiki/Access_Group

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lrsthmp (May 16, 2012 - 6:50 am)

Good info. How do you think the SOL applies to a student, who is working/living in another country? Domicile Clause (i.e.: the debtor's home of record/homestate)?

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ingraffia (Oct 24, 2012 - 5:31 pm)

I have two private loans with chase bank for about 30K that are defaulted status and one loan for sallie mae that for about 30K also in defaulted status. This stems from lose of employment but I am not making good money again, and am looking to possible settle the debts due to length of SOL in Ohio. What would you guys think would be a reason amount to settle, what should I request from creditor to ensure no recourse if settle for less than amount and who you suggest I hire a attorney to facilitate settlement?

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cattleprod (Oct 24, 2012 - 6:42 pm)

Why would you hire an attorney for this? That is crazy.

How close are you to the SOL?

If you make any payment at all, the SOL starts over. Your credit has already taken the hit. Just wait out the SOL. In the meantime, dispute the negative tradeline with the credit bureaus and work on getting them deleted. Deny Deny Deny

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kristidt (Mar 15, 2013 - 4:27 pm)

Hello,

Question regarding SOL, Private Student loans and Ch 13 Bankruptcy

I really need some help and advice on this subject. I filed for ch 13 BK in June 2006 while in medical school. I graduated in June 2007. I paid off my credit card creditors during the 5 year BK plan that was finally discharged in March 2011. I have a hefty amount federal student loans (currently 172,000) which I'm currently paying each month. I cannot afford to make payments on the hefty as well PRIVATE STUDENT LOANS. As soon as I filed the ch 13 BK, the private student loans went into default and likely accelerated the loan payment balance. Since 2006 - the private student loans have increased an additional 50,000 to equal about 150,000 (total for federal and private nearly 400,000!!) plus the private student loans have been passed around to various collection agencies. It has been now over 6 years since the original filing of ch 13. The SOL in Washington state is 6 years. My question is:
Does the ch 13 bankruptcy toll the SOL?
Are the very partial mini payments (almost insignificant)that went towards the private student loan balance during the BK - does that count towards payment - or does that not matter.
I've read several sources that have stated the ch 13 bK payments were NOT voluntary payments made by me - but instead were made by a Trustee that distributed money to the various creditors in the bk plan. Therefore, the SOL applies here(it's been over 6 years since the beginning of default) and therefore the private student loan lenders or collection agency cannot collect or sue. Does anyone know about these subjects?
Is this correct??
Please help!!

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cattleprod (Mar 15, 2013 - 6:04 pm)

You are correct about 6 years for the state of Washington.

I would just go by June 2006 as your date for these issues. Start disputing the tradelines with the credit bureaus for deletion.

Is anyone actually contacting you about these old debts? Seriously, most of these are sold to 3rd parties and the older they get, the less likely it is that anyone even tries to collect.

I would ignore them or tell them to pound sand. If anyone does contact you, tell them it is beyond the statute of limitations.

It is fairly easy to get these older negative tradelines deleted from your credit files. Once they get this old and have passed through a few different owners, the odds are that they won't respond to a dispute and it will end up being deleted from your credit files.

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onehell (Mar 15, 2013 - 6:54 pm)

Actually, the state statute of limitations was tolled during the automatic stay that was in effect during his chapter 13. 11 USC 108(c). Depending on when he defaulted and the length of his 13 plan, he may have as much as another 3-5 years to go on the SOL.

I'd move to a state with no wage garnishment, if it were me.

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cattleprod (Mar 15, 2013 - 7:24 pm)

But in reality, it all depends on who owns the debts now. If it is not the original creditor, then kristidt should adopt the attitude that these are all past the SOL.

Third party debt owners often don't have enough details about the debts they purchased to effectively litigate the issues. Third party debt owners purchase hundreds or even thousands of accounts at 2% to 10% of the original face value. Then they shake the trees and see how many dollars fall into their laps. They just need a small success rate to make a profit since they are paying so little. Their profitability depends on keeping collection costs low. If you put up any hurdles, they typically move on the easier targets.

kristidt should determine who the current owner(s) are of the debts. If they are not bugging kristidt, then ignore them.

If they are attempting some collection action:
1) claim that you need validation of the debts because you have no idea what they are talking about.
2) If they provide good documentation that the debts are yours, then claim SOL and see if they have their ducks in a row to prove that it is still within the SOL.
3) If they have their SOL ducks in a row, then ignore them to see if they actually sue.

In my experience, really old debts are the least likely to ever go anywhere, especially after they have changed owners a few times.

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boojee (Mar 16, 2013 - 1:26 am)

The bond market is ready to melt down unless interest rates are raised. When interest rates are raised, the economy will be in the shitter. Either way, the economy is fucked. In short, fuck'em.

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mystified (May 31, 2013 - 2:39 pm)

Keithd, what did you decide? I am in a similar situation. Got a settlement offer of 70% on a $20K private loan and am trying to get a better deal. I also have a year until SOL expires but I don't think I can wait it out because I need to get my FICO score up to buy a house next summer.

Has anyone been able to settle for less? I'm so sick of this garbage looming over my head, I just want to get rid of it once and for all!

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keithd (May 31, 2013 - 2:57 pm)

I haven't paid these people a dime in almost 4 years. Will be interesting to see if they ever try and sue me.

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