Posts Tagged ‘settlement offer’

Should I file bankruptcy to stop end my student loans and daily debt collection calls?

Wednesday, May 8th, 2013

Question: I am unemployed, owe a fortune in student loans, and $2000 in credit cards with two debt collection agencies. I live rent free with my family. There is no way that I can pay $100 per month to settle one of the debts, which is what they want from me to stop calling. Other debt collectors also call me every day. I don’t have the $2000 that a Bankruptcy attorney quoted me.

My response:
Bankruptcy court will approve the discharge of student loans only if you satisfy the “undue hardship” standard, which requires a special procedure to be filed in Bankruptcy Court. That can be expensive and there is no assurance of a favorable outcome. For a large amount of student loans, however, it may be worthwhile if you hire an experienced Bankruptcy Attorney, who evaluates your case and determines that you will likely prevail at such a hearing.

Many federally guaranteed student loans can be discharged in other ways that may have a more favorable standard depending on the circumstances and type of loans. For instance, if you are disabled and the loans are either FFELs, direct, or Perkins loans, you may be qualify for a disability discharge, which merely requires you to file the form, signed by a physician, that you qualify for total and permanent disability, including the medical diagnosis and why this prevents the borrower from working. There is no cost for this application. More information is available online from Student Loan Borrower Assistance and the U.S. Department of Education. There are other statutory loan discharges, such as for a closed school or if the school falsified eligibility. If a statutory discharge is sought and fails, perhaps bankruptcy can be a backup plan.

I have seen debt collection lawsuits filed against my clients for with under $1,000 in principal balance due. I would not assume that this debt collection agency will not sue to enforce either or both of these debts. However, why would they sue you if you are not working and have no assets or income? To file a debt collection lawsuit in California, the debt collection agency must hire a licensed California debt collection attorney, then pay the court’s filing fee and pay to have a process server deliver the documents to each defendant. These costs and fees can be added to the total debt, but if a collection lawsuit pushes the debtor to file bankruptcy or if the debtor is long-term unable to pay, then the debt collection agency has made a poor business decision to invest money on a debt that will not be recovered.

If the debt collection agency waits too long to file a collection lawsuit, then the debt becomes time-barred by the statute of limitations. From that point on, the debt collection agency cannot file a debt collection lawsuit, without risking having the case dismissed as untimely and risking being sued for violating the Fair Debt Collection Practices Act (FDCPA).  The debt collector may not even threaten to file a lawsuit on a time-barred debt, without violating the FDCPA.  Thus, please read my prior blog posting on the “Don’t Pay A Dime Strategy” as an alternative to bankruptcy.

Robert Stempler
Twitter @RStempler


How do I know that I have received a legitimate offer to settle my debt?

Tuesday, August 28th, 2012

I received a debt collection letter from a company that is out of state.  The web contains many complaints against this company that it commits fraud.  I know that I did not pay this credit card a couple of years ago, so I would like to settle this, so that I would never be sued.  How do I know that if I accept their settlement offer, that they will stop bothering me and that I will not hear from any other company about this debt in the future? No debt collection lawsuit has been filed, as far as I know, but I am worried about all that I read on the web.

My response:
Unfortunately, whether you have a formal, written settlement agreement or simply a letter offering to settle and proof that you accepted the settlement and paid the amount demanded, there exists a few debt collection agencies which do nothing, but defraud money from unsuspecting victims without any finality on the debt.

A false debt collection agency, such as the one from Tracy, CA described by the Contra Costa Times on 8/27/2012, which called consumers threatening to arrest them, might have learned of an unpaid debt of the consumer in an illegal way, such as electronic dumpster diving or special websites maintained by credit thieves.  Then they place harassing collection calls from a boiler room to squeeze funds from many consumers, before the local authorities crack down.  A letter from such thieves is really no more assurance of getting the real debt settled than the collection calls, though a paper trail by mail may feel more reassuring.  However, this type of operation does not even rise to the level of a debt collection agency, if it is collecting debts that it does not have the right to control and settle.

It may also be that these very low life collection agencies are simply proposing a settlement offer as a bait and switch to try to get more, even after the full agreed settlement has been received.  These sorts of agencies prey on their victims by not putting anything in writing, then claiming that the settlement was not satisfied, and demand more. Another ruse used is that they make an offer, accept the settlement money, then sell the debt to another company, not mentioning the settlement to the buyer, which tries to collect the full balance.

Unfortunately, researching the web about the company contacting you, will only make you believe that every debt collection agency is low life and/or unscrupulous.  There are so many consumer complaints against most if not all debt collection agencies, that it is a daunting task to try to decide the category of the agency contacting you, so you know how to proceed.

One source of guidance is to see if this company is regulated in the state where they say they are located, although California does not license debt collection agencies anymore.  States such as Oregon, Texas, and Connecticut require every debt collection agency to register, to be allowed to collect debts from consumers within that state or face stiff penalties. A licensed debt collector in one or all three of these data bases is meaningful, though still no guarantee that that the agency will always behave honestly and with integrity.

Robert Stempler