A Successful Student Loan Discharge, Totality of Circumstances

[KeithDoxen]

QUESTION
Do you happen to know the cite / where in the UCC your referenced provision on promissory notes is?

UCC Article 3 deals with negotiable instruments. Promissory notes are negotiable instruments if drafted in a way that meets the requirements of this section. The statute of limitations for negotiable instruments is 6 years according to the UCC.

The UCC isn't relevant in and of itself to your situation, as it is not a statute, but a model code that states are free to adopt and enact into law in whole or in part. Some states have chosen to enact the whole thing, others part of it, etc. So again, it will be a state by state thing.

If you are a Oregon resident and if you don't see yourself ever moving, Oregon's laws are what matter to you. Oregon Statutes, Chapter 73, deals with negotiable instruments and gives them a 6 year SOL. But again, written contracts also have an SOL of 6 years in Oregon, so really this subject isn't important to you if you're planning on staying there, because the SOL will be 6 years no matter what. If you move though you will want to keep in mind the laws of the new state to which you are relocating.

[blackdog]

DISABILITY INCOME & GARNISHMENT
backtoschool said: "This is very good advice. If you are on disability income, that is usually exempt from garnishment, and you would probably be better off defaulting on the loans. If you have already filed chapter 7, and are planning to do the AP, then remember that the standard for winning will be your inability to ever work again, which is a very tough standard to meet."

Does anyone know if all disability income is exempt from garnishment or just social security?

thanks

[blackdog]

KeithDoxen,

Thx so much for the copious reply.

QUESTION
Do you happen to know the cite / where in the UCC your referenced provision on promissory notes is?

YOU SAID
"I don't know the specifics of your situation, but if you're planning on filing Ch 7 just to discharge the student loans, and not because of any other debt, it's probably a bad idea."
MY RESPONSE
I have other debt, too.

YOU SAID
"You can't discharge student loans absent undue hardship and that is very difficult to demonstrate."
MY RESPONSE
I’m still trying to figure out whether I’ll qualify for the undue hardship exception. The SSA deemed me permanently and totally disabled 11 years ago. My doctor believes I’ll never improve. Combined, are these factors sufficient to meet Brunner’s (#2) requirement that “existing circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans”?

YOU SAID
"You probably would be better off just defaulting if you simply can't pay your private student loans and letting them try to collect. It could be several years before they sue you and for all I know you may be judgment proof."
MY RESPONSE
I don't know if I'm judgment proof, especially considering private student loan lenders are exempt from many laws governing fed student loan lenders. I’m technically in default now although I make token payments. If my health prevents my pursuing the adversary proceeding required by a student loan discharge, I may be in the situation you’ve described. How long do loan defaults and judgments show on my credit report? Does this approach potentially destroy my greater for longer than a BK?

Thanks Keith & Everyone for your assistance.
BD

[blackdog]

duplicate post deleted

[backtoschool]

The statute of limitations starts running either on the date of last activity or the date of default. For example, if you stopped paying them today, and then defaulted in 2 months, the SOL would either start today or 2 months from now. I'm not clear on the law on this and I've heard it both ways.

Several things can "toll" the statute of limitations while it's running. For example, let's say you stop paying on your loan, the SOL starts running, and a year from now you file for Chapter 7. While you're in bankruptcy, the SOL is sort of on pause until the automatic stay is lifted. Also, if you leave your state, the SOL is technically paused as well until you return. These rules really depend on the specifics of your case. I mean, is the creditor really going to claim that your three day road trip out of state tolled the SOL? Would they even know about it? Probably not.

You also need to know that in most states, if you make any payment, it restarts the clock on the SOL from the beginning.

One final note on SOL. The 6 year SOL only applies if your state considers a student loan to be a promissory note. But the promissory note SOL is taken from the UCC section on negotiable instruments, which are generally understood to be checks and things like that. Student lenders have cleverly drafted student loan contracts to technically be promissory notes. But a lot of courts will decide that this doesn't pass the laugh test, and that student loans are clearly NOT similar to checks and other negotiable instruments. These courts will apply the state SOL for written contracts to the student loan. That can either be more or less than 6 years depending on your state. In your state of Oregon, for example, the SOL on written contracts appears to be 6 years, the same for promissory notes. But if you move permanently to a new state and are sued there, the SOL will be the SOL of the new state, most likely.

I don't know the specifics of your situation, but if you're planning on filing Ch 7 just to discharge the student loans, and not because of any other debt, it's probably a bad idea. You can't discharge student loans absent undue hardship and that is very difficult to demonstrate. You probably would be better off just defaulting if you simply can't pay your private student loans and letting them try to collect. It could be several years before they sue you and for all I know you may be judgment proof.

This is very good advice. If you are on disability income, that is usually exempt from garnishment, and you would probably be better off defaulting on the loans. If you have already filed chapter 7, and are planning to do the AP, then remember that the standard for winning will be your inability to ever work again, which is a very tough standard to meet.

[KeithDoxen]

Hey KeithDoxen:
I'm not trying to hijack this thread, but I hope you can clarify something you said b/c it's very relevant to my case.

You said that "private student loans ARE subject to statutes of limitations, which is six years in most states for promissory notes." When does the 6 years begin? Does the 6 year SOL apply only after default or bankruptcy? If it applies at default, then what is the risk of my simply allowing my private loans to default and work on improving my credit score rather than actually going through a nightmare pro se student loan chapter 7 BK?

Thanks a lot. This is a confusing issue, indeed.

The statute of limitations starts running either on the date of last activity or the date of default. For example, if you stopped paying them today, and then defaulted in 2 months, the SOL would either start today or 2 months from now. I'm not clear on the law on this and I've heard it both ways.

Several things can "toll" the statute of limitations while it's running. For example, let's say you stop paying on your loan, the SOL starts running, and a year from now you file for Chapter 7. While you're in bankruptcy, the SOL is sort of on pause until the automatic stay is lifted. Also, if you leave your state, the SOL is technically paused as well until you return. These rules really depend on the specifics of your case. I mean, is the creditor really going to claim that your three day road trip out of state tolled the SOL? Would they even know about it? Probably not.

You also need to know that in most states, if you make any payment, it restarts the clock on the SOL from the beginning.

One final note on SOL. The 6 year SOL only applies if your state considers a student loan to be a promissory note. But the promissory note SOL is taken from the UCC section on negotiable instruments, which are generally understood to be checks and things like that. Student lenders have cleverly drafted student loan contracts to technically be promissory notes. But a lot of courts will decide that this doesn't pass the laugh test, and that student loans are clearly NOT similar to checks and other negotiable instruments. These courts will apply the state SOL for written contracts to the student loan. That can either be more or less than 6 years depending on your state. In your state of Oregon, for example, the SOL on written contracts appears to be 6 years, the same for promissory notes. But if you move permanently to a new state and are sued there, the SOL will be the SOL of the new state, most likely.

I don't know the specifics of your situation, but if you're planning on filing Ch 7 just to discharge the student loans, and not because of any other debt, it's probably a bad idea. You can't discharge student loans absent undue hardship and that is very difficult to demonstrate. You probably would be better off just defaulting if you simply can't pay your private student loans and letting them try to collect. It could be several years before they sue you and for all I know you may be judgment proof.

[blackdog]

Hey KeithDoxen:
I'm not trying to hijack this thread, but I hope you can clarify something you said b/c it's very relevant to my case.

You said that "private student loans ARE subject to statutes of limitations, which is six years in most states for promissory notes." When does the 6 years begin? Does the 6 year SOL apply only after default or bankruptcy? If it applies at default, then what is the risk of my simply allowing my private loans to default and work on improving my credit score rather than actually going through a nightmare pro se student loan chapter 7 BK?

Thanks a lot. This is a confusing issue, indeed.

[KeithDoxen]

No you didn't dodge a bullet. Student loans are non-dischargeable in bankruptcy. It doesn't matter how they're listed on your credit report. The law is very clear on what's a student loan. Your debt is a student loan. Hopefully, recently advanced legislation will change all of this very soon.

That said, private student loans after bankruptcy become tricky for both the debtor AND the lender. I'm in a similar situation, but with over 100k in private student loans. They went into default during bankruptcy and the whole amount came due. I found the whole thing laughable so I decided not to talk to them and to do some research to see what options I had. They sent my debt to one CA. Couldn't get me to pick up the phone. Sent it to a second CA that sent the debt BACK to the original lender after only a couple of weeks! My guess is that the second CA saw the bankruptcy and didn't want to deal with proving that these debts were still valid under the law. Most CAs don't want to deal with even the risk of FDCPA violations. So the first CA got the account back and started calling again, but only every few days.

The thing is, these lenders know that recently bankrupt individuals don't have the assets to pay off their student loans. So suing is pointless, and most collection activity is pretty pointless too. I've heard that some will attempt to settle with you right out of bankruptcy. Most likely they'll wait several years to sue. They'll probably watch your credit report to see if you buy a house or anything they can attach. Just remember, private student loans ARE subject to statutes of limitations, which is six years in most states for promissory notes.

[jazzop89]

The link in Post #1 is dead. If a working link cannot be found, can someone please summarize what it was about?

[scribecm46]

I will pray for you, forgive the caps. I'm a polio survivor i've been on ssdi since 1990, and no one, and i mean no one can live off it. Impossible. So i went back to school and earned two ba degrees to teach special ed, special needs and autism. Chaos was almost immediate. It messed up my medicare, my medication, my benefits and my entire life. I could have ended up under a bridge buy the end of it. So i wrote many letters, attorneys etc., and ended up going through our senators and representatives for help. Well one did. She wrote to the doe and had my medical records with the documents and put me finally on permanent disability. My heart was broken. Not only could i have used that education to help others because i have been in their shoes and then some, but it would have done a service to both myself (self sufficiency) and to those kids who need it so badly. They discharged my loans, which i had fully intended to pay, as an able bodied person would, and to earn a normal living and save my own life as a bonus. The whole thing backfired due to the system, the governemnt, the entire thing was a sham. Others have gotten their ecucations completely paid for due to their disability, not for post polio though. Nightmare continued for five years. It has finally come to an end, but now i'm nearing 64 and i feel hopeless and am on less than minimum wage in ssdi, and will be the rest of my life. It would take a pure miracle to resurface after all this, hard work, and an honest heart wanting to help disadvantaged kids. I understand totallly how you feel. Forgive the big type, having cataract removed this coming wed, but typing and reading is difficult for now. Hope i helped you, but do write to your state representative and explain your situation. Best c

[Amy26]

Yea mine are at a really low interest rate as well and some of them are subsidized ... so, I'm wondering what kind of rate I would get if I tried to refi them again myself.

[mermaids614]

Oh.....I never thought about refinancing. I consolidated mine with a really low rate about 5 years ago. It's under 4%. If I refinance, the rate will go up. So I will have to think about it. I am almost finished with my masters but I have to finish Thesis, which is one credit hour. So no more in school deferments.LOL Thanks for explaining Amy26!

[Amy26]

LOL... how exactly is that fraud? Its an available function of my loans done via an application that they approve (which does not ask for any kind of verification or financial information or anything like that) and I'm legitimately in school for my masters... so, I'm interested to hear why you think I'm doing something fraudulent?

If I want to rack up the interest then I think that's my business... :P That's also why its called a voluntary forebarance... because I volunteer to do it.

[HHM]

Hi Mermaids,

Basically what I meant by that was I haven't paid on any of my undergrad student loans since I took them out. Some of my private loans I've had to pay on but my federal undergrad ones I have not. How have I done this? Basically 2 things... When I took the loans with Sallie Mae they automatically give you a voluntary forebarance window. The loans I have gave me 5 year window I could apply for. I applied for them in 12 month chunks and they are basically always approved.

Then, I went back to school for my masters. So, when I'm in school at least half time, they get in school deferment... I've been doing my masters for about 3 years now. Then, I refinanced my loans with Sallie Mae. The 5 year voluntary forebarance window reset... so, now I have more time on them again. Hopefully in a few years I can refinance again.

Nothing like fraud.

[Amy26]

Hi Mermaids,

Basically what I meant by that was I haven't paid on any of my undergrad student loans since I took them out. Some of my private loans I've had to pay on but my federal undergrad ones I have not. How have I done this? Basically 2 things... When I took the loans with Sallie Mae they automatically give you a voluntary forebarance window. The loans I have gave me 5 year window I could apply for. I applied for them in 12 month chunks and they are basically always approved.

Then, I went back to school for my masters. So, when I'm in school at least half time, they get in school deferment... I've been doing my masters for about 3 years now. Then, I refinanced my loans with Sallie Mae. The 5 year voluntary forebarance window reset... so, now I have more time on them again. Hopefully in a few years I can refinance again.