Student Loans: Paradise for Debt Scavengers

20 Jul Student Loans: Paradise for Debt Scavengers

Renewed attempts at debt collection following bankruptcy discharge are a serious problem. Aggressive collection agencies buy up old debt for pennies on the dollar, counting on being able to collect some proportion of the debt.

It appears that student loan creditors are now pursing debts previously thought to have been discharged. Educational Credit Management Corporation (ECMC), a leading student loan collector, is pursuing an interesting variant of this strategy. ECMC is reviving old federally guaranteed student loans for accounts upon which the lender long since ceased collection efforts but never made a claim upon the Federal Government under its guarantee contract.

Creditors attempting to collect other forms of discharged debt operate under restrictions that do not hamper student loan creditors. They are subject to state statutes of limitations that prevent them from using the courts to garnish wages or bank accounts. There is usually no question about whether the debt was included in a bankruptcy discharge for ordinary consumer debts.

For student loans, on the other hand, 20 USC Section 1091a renders state statutes of limitations for collection inoperable. Increasingly, old bankruptcy discharges in cases that included student loans are being challenged on various grounds and a number of decisions have allowed creditors to revive collections.

ECMC vs. Bradco Inc., 2008 U.S. Dist. Lexis 2008 (U.S. Dist. Kansas, May 14, 2008) involves an action against the debtor’s employer. In 2007, nineteen years after a bankruptcy discharge was entered, ECMC submitted a garnishment order attaching the debtor’s wages, and sued the employer when the employer did not comply.

Student loan creditors are challenging procedures used by debtors to determine the dischargeability of their loans and the manner in which notice of the discharge proceeding was given to the creditor. One such case, Espinosa v. United Student Aid Funds, has been accepted by the US Supreme Court for review. Is it too much to hope that our highest court will put an end to this nonsense?

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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