I Thought My Student Loan Was Discharged in My Bankruptcy. Now They Say It Can’t Be and Want Their Money. – Joseph


“Dear Steve,

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Filed BK in Cali June 2006. EDUCAP loan (student) was included in BK. EDUCAP claims that said loan is NOT dischargeable. I’m concerned that they are accurate.

My original loan was for 18k (1800 went to them as a funding fee). I paid faithfully for about 6 months. My owed amount in default was 17,700 ish. In Nov 2008, I noticed this debt was still negatively reflecting on my credit report. I contacted EDUCAP myself and explained the discharge. After discussing this debt via phone and learning about debt not dischargeable I was told that the debt was so far past due that it was being handled by a collection agent (I had never been contacted since the BK). I contacted the company (in OH) and began working with them. After about a month a new collection atty contacted me from my home state (MD).

The debt now is being claimed as over $31,000! The only two options I am being given is Lump Sum within 30 days of $24,000 or 3k down and 275/mo on the remaining 28k+ at continued rate of 8% plus all fees continue until I am current on the debt (which states that I am behind by 7k to bring current).

Neither option seems optimal at this time. I am told they can sue me in judgement court and I am thinking that I may get a better deal from a judge.

My question is this: I am wiling and capable of pay this debt (I can not afford more than $400/mo) but I feel that the collection fees are very excessive since I was the one that went to them to settle.

If they want to pay a collection fee, they should pay me and I will charge $1.00! I want them to take me to court for a judgement and they don’t seem to anxious to do this. How can I force a court hearing for a judge ordered settlement? What can I expect from a Judge in this case? Will he/she slam me with the entire amount (31k – is almost double the original borrowed amount) and demand a lump sum payment?

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Or is it more likely that given the economy and my willingness to settle, will my amount be reduced? I am trying to clean up my credit so what is the best option here? I know the BK will stay on my credit for another 8 years but my current score averages 617 with only this EDUCAP causing me to stay down. My fair scenario would be for me to give this company 3k down and pay 275 – 325/mo on a remaining amount of <19.5k. I also want them to remove all info of said debt from my credit report ONCE amount is paid in full! I don't feel that is a bad deal for all and yet this company seems hardcore in not settling at all. Joseph" [adinserter block="3"] Dear Joseph, My first reaction is that the student loan discharge in bankruptcy was incorrect and it was not eligible for discharge. But before you or I make any assumptions, I think you need to go back and talk to the legal professional you hired to handle this matter for you. I suggest that you contact your bankruptcy attorney and discuss the matter with them. As far as some of your other assumptions go, I'm afraid you are on the wrong track. If the matter goes to court for a judgment against you, the judge is not going to reduce the amount you owe. That amount will be determined by the balance, interest rate you agreed to, default charges, etc. that were part of the agreement you signed. The judge is there to decide the issue as a matter of law. And if the loan was not discharged in bankruptcy, and remains unpaid, then the contractual agreement is going to be the document for the court to reference. If the lender wins the judgment they could then go for a court order to garnish your wages or worse.

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If, after talking to the bankruptcy attorney, you learn that the student loan debt was not discharged in your bankruptcy, the $3,000 down and $275 a month does not sound like a horrible arrangement. Interest will continue to be charged at the agreed rate of the settlement and there is no expectation that this account will be reported as anything other than its actual status. It should not be removed after it is paid off. Your credit report will reflect that at one time you were delinquent on this debt but the more time that passes from the point this matter is closed, the less of a factor it will have on your credit score. Remember, the offer to settle is a compromise on their part. They are not required to settle and as long as this is a valid debt, they can pursue you for the rest of your natural life, even after the statue of limitations runs out to sue you. [adinserter block="4"]

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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