False and Misleading Settlement Offer by CA - Student Loans

[agoodperson]

First some quick background:

I have really really old student loans going back to 1980!

They were supposed to have been discharged in BK (Ch.7) in 1989

(before the SOL laws were changed in 1991), but apparantly

they were not in a 5 year collectability period prior to the discharge,

so apparantly they weren't discharged. That has been the position

of the DOE.

Over the years, my account has been assigned to various Private

CA's. I live in California.

I have always been willing to work out a negotaited settlement,

but have never been able to get any of the PCA's to work with

me... I understand (and am resigned) to the fact that I will have

to pay the full prin (about $9K) and some of the interest,

with the hope that collection costs (allowed to be 25% of total)

are dropped.

But I get constant run-around from the PCA's.

They claim to have a desire to work out a settlement, but then

they make the terms impossible at the last moment.

I was told last week by the latest PCA that they had "good news"

for me....... they could settle the account for about

$12,500. While this more than the financial resources I have at the moment,

(I would have to borrow money to make it, etc.) it was at least

less than what other PCA's had offered to settle.

As I scrambled to see if I could make this (the payment would have

to be made over a very short period of time, like 30 or 45 days), the

PCA called me back a few hours later and took the offer back, saying

the DOE would not approve it. The PCA went back to their original

offer of $14K. While this isn't a huge difference, it still represents

an increase of $1,500.

To me this sounds like bait and switch. And I wouldn't be

surprised if the $1,500 add on represents the PCA's commission.

The person at the PCA I was speaking with was a manager,

so clearly she had the authority to know what she was doing.

I'm thinking they were thinking that if I could come up with

$12,500 at the drop of a hat, then why not do a bait and

switch and add another $1,500 to it.

While I make a decent living, I have no assets (other than small sums in an IRA retirement accct), am self-employed and drive a ten year old car!

The PCA would not give me the name of the person they

allegedly spoke with at the DOE who had turned down the offer.

Stranger still, I later called the DOE myself and they told me

they had no information in their files about the PCA having

contacted them about the reduced settlement offer, or that

the DOE would not approve it.

Clearly then, this had to be a "false and misleading" statement

by the PCA, and isn't this prohibited by the FCRA and or FDCPA?

I sent a letter to the PCA (I cc'd the DOE as well) describing all of the above, and they have yet to get back to me disputing the reduced settlement

offer they made to me.

What are my options now? Can I sue the PCA for false and

misleading statements?

I would just really prefer that they honor the reduced settlement

offer they made to me, so I can get this whole thing with the

DOE over with and get on with my life.

Thank you one and all for any of your thoughts.

[LynnInMN]

You are barking up the wrong tree. Generally when we did DOE settlements we did not have to ask anyones permission unless we were going over a certain threshold. It is really none of the borrowers business who approves it and they are legally not under any obligation to tell you what the policies are or who approves them or even if they require certain approvals.

The CA will get about a 9% commission off the top of whatever is collected so it is nowhere near $1500. Also, you will end up being taxed on whatever portion of the debt they settle off on. You will receive a 1099 next year.

You are currently running a 7-8% interest rate. You could have rehabbed this or consolidated it years ago to avoid dealing with CA's. Being self employed, I am really surprised they havent filed suit against you yet with a loan that old.

[bigjohnstud4200]

I am really surprised they havent filed suit against you yet with a loan that old.

Not sure if the OP is under different rules b/c of the age of the account, but if it's a federal backed loan, they don't need a suit. They just garnish.. it happened to me. Good Luck!

[LynnInMN]

Not sure if the OP is under different rules b/c of the age of the account, but if it's a federal backed loan, they don't need a suit. They just garnish.. it happened to me. Good Luck!

Age doesnt matter when it comes to student loans...a 1980 loan is just as garnishable as a loan taken out in 2005. However the OP is self employed and the guarantors are more likely to file for judgement when the borrower is self employed and has not made payment voluntarily.

[bigjohnstud4200]

Age doesnt matter when it comes to student loans...a 1980 loan is just as garnishable as a loan taken out in 2005. However the OP is self employed and the guarantors are more likely to file for judgement when the borrower is self employed and has not made payment voluntarily.

Aww, I totally overlooked the "self employed".

[momof5]

OP, check with your BK atty.

My student loans were discharged. (filed in 93 on SLs from 1979-84) The DOE objected because I got a 4 yr military deferrment. The Trustee said ALL that mattered is when they originally became due.

Check your BK papers. Unless it states specifically that they are NOT discharged, then they were. (IMHO)

[LynnInMN]

OP, check with your BK atty.

My student loans were discharged. (filed in 93 on SLs from 1979-84) The DOE objected because I got a 4 yr military deferrment. The Trustee said ALL that mattered is when they originally became due.

Check your BK papers. Unless it states specifically that they are NOT discharged, then they were. (IMHO)

Wrong. BK papers do not say what and what not is discharged. It says "all dischargeable debts are discharged." Student loans are NOT dischargable unless you met the 5 or 7 year rule for when the loan became due.

I don't know why the DOE would object to military deferment. Any period of deferment does not count towards the 5 or 7 years. The clock starts after all periods of deferment ends.

[Macwench]

Wrong. BK papers do not say what and what not is discharged. It says "all dischargeable debts are discharged." Student loans are NOT dischargable unless you met the 5 or 7 year rule for when the loan became due.

Don't mean to thread-jack, but this follows in the same lines...

DH's student loan was included in BK (loan from 1987, BK in 2005), and I am looking at the paperwork now and it doesn't say "all dischargeable debts are discharged." It says

DISCHARGE OF DEBTOR

Appearing that the debtor is entitled to a discharge.

IT IS ORDERED:

The debtor is granted a discharge under section 727 of title 11, United States Code, (the Bankruptcy Code).

BY THE COURT

Signature

UNITED STATES BANKRUPTCY COURT

Thanks for any info or insight you may have. DH hasn't been able to work in over 10 years and we thought the loan was discharged with BK. I did find this when I did a google search:

In the past few years, the Code was changed and now the Bankruptcy Code says (in 11 USC 523): "(a) A discharge ... does not discharge an individual debtor from any debt— (8) 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;"

Maybe it's just that his were discharged because of the disability? Or that they weren't discharged at all? I am very confused!

[LynnInMN]

You more than likely still owe it unless you had a special hearing specifically for the student loan showing undue hardship. If you just listed it and no hearing was held, it would not be discharged. The 5 or 7 year rule was removed in 1998 making it more diffiult to discharge a student loan.

From the DOE site

Prior to October 1998 changes in bankruptcy law, whether a loan or grant overpayment was discharged in a bankruptcy depended on different rules, depending on when bankruptcy was filed, how long the student loan had been in repayment, and what kind of student loan the debtor had received. Generally, loans or grant obligations owed and in repayment for more than five, and later seven, years by the time the borrower filed for bankruptcy relief were dischargeable by reason of the age of the debt; debts owed and in repayment status for shorter periods were dischargeable only if a court ruled that repayment would pose an undue hardship. In addition, a general discharge received in a Chapter 13 (wage earner plan) bankruptcy that was filed before November 5, 1990 was sufficient to discharge a student loan or grant obligation without regard to how long the debt had been owed, even if the debtor failed to prove that repayment would pose an undue hardship.

[Macwench]

Thanks for your insight LynnInMN. I'll talk to our BK attorney - don't think there was anything special though.