HHM - Re: Student Loan

[needinganswers]

HHM, I met up with the new lawyer yesterday regarding the student loan. He stated that nothing on the promisary note says that the student loan is funded or backed by the government (wholly or partial). Instead, it says that it is guaranteed by the co-signer, who is me. When my husband applied for financial aid, he was denied and was offered the alternative loan. It is a private loan or signature loan which has been serviced and MAY HAVE BEEN GUARANTEED OR INSURED by this educational loan services who is a public, non-profit agency. Our bk lawyer sent a letter directly to the lender to find out why they sent a re-affirmation agreement regarding the student loan when the loan is supposedly guaranteed by the goverment to begin with, right? Whether we sign the agreement or not, we will be bound to it. Anway, our bk lawyer says not to sign the agreement. The lender stated that we have the information and that we should know whether it is a dischargeable loan. It sounds ambiguous to us. When we filed for bk last June, we expected to pay the student loan for the next 20 years. Of course, the reason we filed for bk is that we want a fresh start. If we could get a discharge including the student loan from the court, then that would be fabulous! The lender is playing hardball. They could just write or call back stating that the loan is in fact dischargeable or show proof that it is goverment funded. Now, we have to spend at least $3K for a retainer fee to find out if this student loan is in fact dischargeable. My question is: Is it true that the case could last up to 2 years? The lawyer says that it could cost us up to $10K. Does this mean that we will not get a discharge from the court for as long as this student loan is open in question? HHM, do you think we have a case? $3K is a lot of money for us, but if we have a chance, then we will make every effort to come up with the money. Thank you in advance for any comments or suggestions given.

[HHM]

First, you really can't replace my judgment on this matter for that of the lawyers you have seen.

Honestly, unless the court is really backed up or under staffed, I really don't see why the case would take two years to resolve, these proceedings tend to be straight foward and the discovery (i.e. evidence) needed tends to be limited and usually easy to come by. Having said that, there really are no attorney experts in this area because these cases are rarely brought (mainly because the debtors can't afford them), so even finding an attorney who has litigated even one of these types of case is a blessing.

I do believe you would still recieve your discharge (a discharge is an administrative order entered by the Bankruptcy Clerk), so I don't think it will hold it up (but I am not 100% certain on this).

No matter what happens, do not sign the reaffirmation agreement.

You have a couple options.
(1) do nothing, I think the bank may have made a mistake by offering a reaffirmation, thus revealing that the debt is probably discharegable. So, you can let the bankruptcy go through, do nothing, and see if the bank tries to collect the debt after the bankruptcy, and then, if needed present a case that the debt was discharged.

If you do nothing there are two results, (a) the debt is discharged and you won't have to do anything, or (b), they attempt to collect the debt and you may need to reopen your BK case or start some other court proceeding to get a determination on whether the debt was discharged.

The risk of doing nothing (and something you should speak to the lawyer about) is whether you will be able to bring a complaint to determine dischargeability after the fact. In legal jargon there is something called estoppel, which basically means, if you don't bring a cause of action when it was ripe for determination, you may lose the right to bring that cause of action. Estoppel may apply to these proceedings, so waiting to see if they attempt to collect and then bring the action may not be an option (again, you will need to see a lawyer about that).

(2) file the complaint to determine dischareability in this bankruptcy and get a determination one way or the other.

$10K is probably not an unreasonable amount to expect to pay. Also, if your attorney is smart, he may be able to set the bank up (so to speak) so that if you prevail, the bank will have to pay your attorney fees (its a long shot, but if the bank is playing hardball, that may be able to be used against them).

Ultimately the decision is yours, your facing paying over $100K in student loans, with an open, good faith question as to the dischargability of those loans. You should note, if you DON'T contesnt it now, you will not be able to in a future bankruptcy.

[needinganswers]

You don't know how much I appreciate your comments and input. Thank you.

The lawyer is suggesting that we act NOW while the iron is hot because, according to him, it will cost us more money to reopen our case once discharged in case "the fools" decide to collect after the fact. Ugh!

I did read the bank's promisary note over and over again and there's nothing there that says anything about goverment guaranteed or insured. I did read the educational loan services "repayment schedule for the alternative loan" and again, nothing there says that they insured or guaranteed the student loan either. The schedule refers back to the promisary note which came from the bank. I wonder if it's possible for a public, non-profit agency to service a student loan but not necessarily insure or guarantee it if the loan is anything but federal? And that is why the bank asked for a cosigner who will guarantee it? Unfortunately, the cosigner also filed bk along with the borrower.

Logically and emotionally, I'd say go for it. Now, we have to come up with the initial $3K. HHM, we win this case, you better believe it, I will ask the money back from the bank! It serves them right.

THANK YOU! I will keep you posted.

[HHM]

Yeah, I am interested to see how this plays out (mainly because these cases are rare).

And yes, it is possible to have a non-profit loan servicing company service the loan but not guarantee it. If there was a consigner and the note does not put you on notice of any government or non-profit guarantee and the bank is offering a reaffirmation agreement, you MUST get a determination now. Beg borrow and steal to get that $3000 and clear these students loans. Even if you have to spend $10K now, that is a hell of a bargain to get out from under $100K+ of students loans that you will be paying on for the better part of your lives.

[abc123]

"Private" Student Loans - dischargeability issues

I would like to share this with all of you who seem to be having difficulties with the non-profit organization issue as it relates to private student loans taken out through a bank or other commercial/private lender.

Through my research, I have found the following - first the code:

Section 523(a)(8) of the US Bankruptcy Code, at 11 U.S.C., excepts from discharge debts:
"for 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 for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents".

- do you see the part "or made under any program funded in whole or in part by a governmental unit or nonprofit instiution" - this is the part that should concern you.

Apparently, a number of "private" loans from banks are GUARANTEED by non-profit organizations, one notably large one being TERI - The Educational Resources Institute (www.teri.org). Supposedly this one organization guarantees many private student loans, so it definitely behooves you to contact TERI and find out if they guarantee or are otherwise involved with one of your private loans.

Now, I believe, from what I've heard, that the fact that these are guaranteed mean that the bank lends you the money, but if you default, the GAURANTOR (i see people are having difficulties differentiating between the "co-signor" guarantor, and the fact that some entity may be the GUARANTOR of the loans - they are different) - anyway, the GUARANTOR in this case pays the defaulted amount to the bank, and effectively becomes the new note-holder or loan holder. THIS IS WHERE THE DIFFICULTY COMES IN, AS YOU ARE BASICALLY SEEKING DISCHARGE IN EFFECT FROM A NON-PROFIT.

Now, this does not mean NECESSARILY that these are 100% not dischargeable, but you can see that there is difficulty here, and it "doesn't look good".

CONVERSELY, there apparrently ARE private bank loans that are NOT guaranteed or serviced (again, the servicing vs. guarantee issue is another issue also) by a non-profit organization. An example of this is APPARRENTLY Norwest bank student loans (e.g. "Priority" loans, or "Success" loans) now under WELLS FARGO (norwest bought wells fargo but uses the Wells Fargo name).

But don't quote me on that one, you should definitely check it out for yourself to be sure. Again, I stress again, the word "appears", as in, they say (when you call the main line for the loans) that there is not involvement by a non-profit, nor has there been for some time (again, i don't know how long "some time" is) but IT IS DIFFICULT TO KNOW FOR CERTAIN. Also, TERI, who is a very large non-profit as I said, claims also that they have no connection with Wells Fargo/Norwest loans. But again, you should verify all this for yourself.

ALSO NOTE, this does not address this issue I have seen raised of whether the loan is INSURED by some non-profit entity - although it does not appear from the code that being INSURED by a non-profit is a problem, but that being insured by a "governmental unit" is.

Again, you may draw your own conclusions, but remember that most every bankruptcy lawyer i've spoken to agrees that private student loans are a tough issue.

For instance, outside of non-profit affiliation, etc. there's the second part of the code about "loan or obligation made as an educational benefit, scholarhip or stipend..." - it seems to imply only scholarship, stipend and other moneys given with direct relation to school of that nature, but could this be a problem as well?? I'd actually welcome any thoughts on that part from HHM or anyone else.

Thank you and good luck - but be careful.