Chapter 7 put private Citibank loans into default!!!

[Bloodflowers]

I feel so sick to my stomach.

I filed Chapter 7 in December. I have 35,000 in private loans through Citibank that have been in repayment. I was paying them. I never missed a payment or due date. My attorney told me nothing would happen to my loans, as they aren't dischargeable--which I knew. I am filing Chapter 7 to try to get on my feet so I can pay my student loans back. I have a huge load of federal loans separate from this.

So...I went to make my usual Citibank payment and I'm locked out of my account. I call them to inquire about my loans, and they tell me they went back to the guarantors and that I would never have any dealings with Citibank again. Accordingly, I received a letter from DCS Inc collection agency demanding the money or face legal action. I don't have the money, of course.

It has been my impression that others with private loans have them go into a type of forbearance, then after discharge things go back to normal. I never expected to be defaulted and face more debt than what I rightly owe.

I am completely freaking out. I will never get out from under this debt if I'm now having to pay collections huge amounts of money beyond the debt, and i don't have but the usual payment I made to Citibank fitting in my budget. I'm barely scraping by.

I haven't heard back from my attorney, but I'm so upset. Does anyone have any advice? If I knew filing Chapter 7 would do this to me I may have reconsidered. One step forward, two steps back? I just feel like I'm being unfairly punished. I paid my bills and no reason to expect a default. Perhaps it's karma, I'm not paying other unsecured debts and asking for those to be discharged, and in return......

Sorry, i just feel really overwhelmed and pessimistic right now.

[KeithDoxen]

Unfortunately, Citi was probably within their rights when they did this. If you pull out your original agreement with them, you will probably find a provision that allows them to automatically default your loan upon bankruptcy. This provision exists in many private student loan contracts.

There really is no practical way of reversing this. The guarantor has already paid Citi in full for your loan. You're not going to convince Citi to give that money back to the guarantor. The guarantor now owns your debt.

What you have going for you, of course, is the reality that you're a bankrupt individual who is being liquidated of assets. This makes it very difficult for the owner of your loan, who wants to squeeze 35k out of you that you don't have, and that, even if you did have, the bankruptcy court would be about to take. Unless you have a cosigner with assets, don't expect to be sued on this loan anytime soon. Never say never, but it's very unlikely that they will sue in the near future.

Try and get them to agree to a payment plan that is reasonable, similar to the one you had before. Don't worry about "all those extra collection fees." Heck, there are plenty of stories on here about folks settling private student loans for far less than the original balance that the collection agency took over.

Incidentally, it sounds like you are still in the middle of the automatic stay. They are not allowed to take any collection actions against you during the automatic stay. That letter they sent you is a major no-no and your attorney should be able to help you in this area. Have you told your attorney about this? You need to.

I'm sorry that your attorney was unaware that this could happen. Attorneys are fairly useless when it comes to student loans unfortunately. When I filed, even though I am an attorney, I decided to allow another attorney friend who was familiar with bankruptcy to represent me. He told me that he wouldn't even give me advice on my student loans, because he didn't want to steer me in the wrong direction. Attorneys are dropping the ball all the time on student loans so this doesn't surprise me.

[Bloodflowers]

Thanks. I hear what you're saying.

I sent my attorney a copy of the letter from the collection agency. I haven't heard back from him yet.

I guess my fear is they will sue me and take my wages. I am employed, but we really need my whole paycheck. I don't know how we'd survive if they garnished them.

Ugh.

[DebtEnder]

I would strongly pursue them for violation of the auto stay. The only reason they got the loan back was because of the BK, they know full well your in BK now.