Get Out of Debt Guy - Steve Rhode

I’m Disabled and Want to Get My Sallie Mae Student Loans Discharged in Bankruptcy – Josh

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Question:

Dear Steve,

I took out three private student loans through Sallie Mae (now Navient) between 2005 and 2007 to attend an ITT Tech campus (as I’m sure you’re aware, ITT has recently been shut down).

What started out as $30,000 has now ballooned to approximately $62,000. The loans became delinquent in October of 2013 and were charged off in June of 2014.

I have not made any payment since a forbearance fee in 2009. The lawyer that currently represents me for this debt has written cease letters to the collection agencies.

I have Cerebral Palsy (for which there is currently no cure) and my only source of income is SSI. I also had federal loans, but those have been remedied by the Total and Permanent Disability Discharge.

As for the private loans, I am afraid of a lawsuit, which comes with a money judgement that can last (and be renewed) for 20 years.

Although I know my SSI is protected income and my credit score is in the high 600s, these charged off debts have made it impossible for me to get things like an auto loan. My mom has taken out a loan solely in her name that I pay, so I have a car to drive.

My lawyer does not believe that bankruptcy with undue hardship would be successful in order to discharge the private student loan debt. What should I do? How do we know the outcome for me not having tried it?

How do you think my disability and SSI only income would be viewed by a judge if I am in fact sued and taken to court? Could the judge dismiss the lawsuit?

Would I have any defenses (besides statute of limitations or that the plaintiff lacks standing to sue)?

Thank you for your time.

Josh

Answer:

Dear Josh,

Thank you for your question. Let me be very clear, I am not an attorney. I can’t give you legal advice. That is what the attorney who is licensed in your state is for. But I can give you my opinion and impressions.

While you are bravely battling CP it does sound as if you are able to work a bit if you feel in a position to apply for an auto loan and make the payment.

I understand the position of your attorney but based on what you shared with me I’m not convinced an undue hardship is unobtainable. But pursuing that would probably require your attorney to sue the student loan holder through your bankruptcy proceeding with something called an Adversary Proceeding. That process can often be very expensive for consumers. It’s generally not something included in the standard bankruptcy filing fee or service.

As you’ve discovered, the private student loans don’t have a similar disability discharge option.

When it comes to a possible lawsuit, you need to evaluate it based on the law, not logic. That’s where your attorney can give you information about what typically happens in similar cases.

If your only source of income is SSI then it sounds as if you would be judgment proof even if you were sued and lost. The creditor could not attach your benefit income.

As far as what the outcome might be, all we can do is guess. Sometimes the outcome is not a complete discharge of the debt but a settlement negotiated with the lender. This may be for a greatly reduced balance and nearly 0% payments. But even if you went down that route I wonder how you would be able to afford any payments on SSI alone.

These days most of the civil cases filed and settled with Sallie Mae involved debt collection calls and violations of the Telephone Consumer Protection Act. Here is one such case.

But When it comes to obtaining a discharge in bankruptcy, take a look at this case where woman ruled disable by Social Security won a total discharge.

And here is a case from a person who became disabled and awarded SSI after attending ITT Tech. Their student loans were discharged.

“Mr. Simoni also does not anticipate that his financial position will improve substantially in the future, including during the repayment period for the loans at issue. Because Mr. Simoni’s physical disabilities are serious, permanent and not likely to improve in the near future – and may in fact deteriorate further – Mr. Simoni does not anticipate that his current household income will increase, as he will continue to be unable to work on a full- or part-time basis.

Mr. Simoni has made good faith efforts to repay the Sallie Mae Loans. While he has not been able to repay any part of the loans, that inability is due to forces beyond Mr. Simoni’s control {i.e., the injuries suffered in the accident and his resulting inability to work at all). Debtor has never had the financial resources to repay the loans.”

All the student loans were discharged.


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