Your Frequently Asked Questions about Debt and Bankruptcy in Houston
Although you may feel very alone right now, you should take solace in the fact that we didn't just invent these questions—we hear them frequently from individuals just like yourself. Consumer debt is a nationwide problem and with a little legal guidance, you can be well on your way to living a fulfilling life.
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Can I complain to the Department of Education if a federal student loan debt collector is harassing me or lying to me?
Yes. You can file a complaint with Federal Student Aid, an office of the Department of Education. It may or may not solve your problem, but at least it will make them aware of it.
You also have rights under federal and state law to sue a debt collector under certain circumstances. If you feel your rights have been violated, consider consulting a lawyer about your rights under the federal Fair Debt Collection Practices Act (FDCPA) and similar laws.
Can you be arrested for not paying a student loan?
No. You cannot be arrested for not paying a student loan.
But if you are sued for a student loan and have a judgment granted against you, and then are ordered by a court to answer questions about your finances and refuse to do so, then yes, you can be arrested and jailed, not for not paying your student loan but for violating the court's order.
Lesson: If you are involved in a court proceeding, always comply with court orders. Or you may get arrested and jailed.
I can't afford my monthly student loan payments. Are there any new repayment options for federal student loan borrowers?
Effective Dec. 17, 2015, borrowers with Direct federal student loan will be eligible for the Pay As You Earn or PAYE program under the new REPAYE option, no matter when their loans were taken out.
This means that if you cannot afford your regular student loan payments, you may be eligible to pay as little as 10% of your discretionary income towards your loans, with any unpaid balance forgiven after 20 years. Some borrowers may have a payment as low as 0 per month, depending upon their income.
If my school closes while I am attending, can I have my federal student loans cancelled?
Generally, you may be eligible for a "closed school discharge" or cancellation of your federal student loans if either:
- Your school closes while you're enrolled, and you do not complete your program because of the closure. If you were on an approved leave of absence, you are considered to have been enrolled at the school, or
- Your school closes within 120 days after you withdraw.
There are certain other reasons why federal student loans may be forgiven or discharged. For more information, go to Federal Student Aid, an Office of the U.S. Department of Education, or Student Loan Borrower Assistance SLBA.
If my private student loans were incurred before the law changed in 2005, can I discharge them in a bankruptcy filed now?
No, unless you can show "undue hardship." The law in effect on the date the bankruptcy is filed controls. In re Shaw, Case No. 13-03251, U.S. Bankruptcy Court, SD Texas 2015.
Private student loans were dischargeable in bankruptcy prior to BAPCPA, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Under current law, if the private student loans are qualified educational loans, you must filed an adversary proceeding and prove "undue hardship" during your bankruptcy case, in order to have them discharged. It can be a very difficult burden.
Can I stop the Department of Education from garnishing my paychecks for student loans?
It might be possible to stop it administratively, by requesting a hearing after you receive your required notice that you are about to be garnished. You can challenge the garnishment for certain reasons, including that the garnishment will cause financial hardship to you or your dependents.
If you don't win your hearing, and you qualify, filing chapter 13 bankruptcy stops the Department of Education from garnishing your paychecks. Federal student loan garnishment can otherwise result in 15% of your disposable pay being deducted and sent to the government.
Will bad credit or bankruptcy keep me from taking out a Parent PLUS loan for my child to go to college?
One of the requirements for being approved for a Parent PLUS student loan is that the applicant not have an "adverse credit history." The Department of Education has just made "credit check" requirements to go into effect on March 29, 2015.
The new rules say that the Department will consider whether an applicant has an adverse credit history if the prospective borrower:
1. has one or more debts with a total outstanding balance greater than $2,085;
2. has debts that are 90 or more days delinquent as of the date of the credit report; or
3. has debts that have been placed in collection or charged off as defined in the regulations during the two year preceding the date of the credit report OR
4. if the applicant has been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a federal student loan debt during the five years preceding the date of the credit report.
Not having a credit history won't keep someone from qualifying for a PLUS loan. Also an applicant may still qualify for a PLUS loan even if they have adverse credit histories, if they can obtain an endorser (co-signer) who does not have an adverse credit history, or prove to the DOE's satisfaction that there are extenuating circumstances.
My private student loan payments are too high! How do I get them reduced?
It may not be easy, but you can ask for a payment reduction. If you have private student loans and the payments are just too high or you have lost control of the payments, the Consumer Financial Protection Bureaus or CFPB has issued a new sample letter for you to use to ask for payment reduction.
In a blog post issued today, the CFPB stated what most of us know, that private student loans don't have many repayment options. So the CFPB advises borrowers in trouble with their loans to send a detailed letter to their private student loan company or "servicer" and ask for help and other information about their loans.
There is also a sample financial worksheet, so you can show your loan servicer how much you can afford to pay, if anything. There is also a "Repay Student Loan" tool that can walk you through the process of dealing with your student loan debt.
If you cannot deal with your student loan debts or you have other serious debt problems, and you live in the Houston, Texas metro area or surrounding counties, call our law office at 713-772-8037 and make an appointment to meet with one of our attorneys.
Student loans are not usually discharged in bankruptcy, but there are exceptions and sometimes they can be. And when you file a chapter 13 bankruptcy, in most cases it is possible to stop collection against your co-signers, and perhaps buy time until you are in a better position to deal with your student loans. We will review your options with you at your first consultation with us. There is no charge for your first consultation with us.
I am overwhelmed with student loan debt. How do I even start to deal with it? Help!
A good place to start to figure out how to deal with overwhelming student loan debt is on the website of the Consumer Financial Protection Bureau (CFPB).
If you have student loan debt and you are in default, or just overwhelmed with the amount of it and how to deal with it, check out the new "Paying for College" tool on the website of the Consumer Financial Protection Bureau (CFPB).
Particularly if you have federal loans, there are many repayment options; you don't have to feel that you are in a hopeless situation.
Our law office regularly has student loan borrowers come into our Houston-area law office that have let the situation get out of hand. Don't let that be you!
If you default on federal student loans, the Department of Education can put an "administrative wage garnishment" or AWG on your paycheck for 15% of your disposable pay. The DOE can also take your federal tax refunds to apply to your student loan debt. They can even sue you for the debt in federal court!
There is no need to let it get that far, at least if you have only federal loans. If it already has gotten out of hand, you can seek help on the CFPB website and try to figure out the best way forward for you. If that fails, call our office anytime at 713-772-8037 and make an appointment to come see us.
Can I negotiate an affordable repayment plan for my defaulted private student loan?
Maybe, but I would not count on it. In my experience, private student loan creditors want higher payments than my clients can afford. And if you don't pay them, they can sue you and your co-signer(s).
If there is no other option to dealing with a private student loan, filing chapter 13 can stop student loan creditors from bothering you (federal loans also), and let you pay an amount that you can afford. They usually are not discharged by the bankruptcy unless you can show "undue hardship," but at least you are protected for 3-5 years, you usually get rid of all of your other debts, and when you are finished with the chapter 13, you can concentrate just on dealing with the student loans.
And with chapter 13, there is a co-debtor stay, so that the debt collectors cannot bother your co-signers either, all the time that you are in the plan, which can be from 3 to 5 years. Call our office anytime at 713-772-8037 for an appointment with one of our attorneys, and we will be happy to explain how to get protection from your creditors, including your student loan creditors.
Do student loan creditors ever agree to the discharge of their debts in bankruptcy?
It doesn't appear so from a recent bankruptcy court case from the District of Massachusetts.
A former lawyer was found to be so mentally unbalanced that he is unable to work at more than menial jobs, in this court opinion by highly respected U.S. Bankruptcy Judge Joan Feeney. The debtor was able to have his student loans discharged in bankruptcy. In re Ablavsky, Bankr. Court, D. Massachusetts 2014.
What's notable to me is that although the debtor put on detailed expert testimony from a Harvard-trained psychiatrist, the Dept of Education and the other student loan creditor still argued that the debtor was not entitled to an undue hardship discharge of his student loans.
The Department of Education also argued that the debtor should not get a bankruptcy discharge of his student loans because he had not participated in any of its alternative repayment options, or applied for a disability discharge using the DOE's administrative procedures. Neither of those options are mentioned in the Bankruptcy Code or required by the statute to receive a hardship discharge in bankruptcy.
The Court explained the "Brunner test" and the "totality of the circumstances test" and found that the debtor was eligible for a bankruptcy discharge of his student loans under either test. And even though the debtor had pled guilty to the crime of destroying a court file when he was a lawyer, the court found that his actions were the result of his mental illness, not that he was a criminal that brought all his problems on himself.
So if you attempt to discharge your DOE student loans in bankruptcy, just be prepared for a fight. If the Dept of Education won't concede this one, it's difficult to imagine any that they would concede.
I want to help my child go to college, should I take out Parent PLUS loan to help pay for it?
Student loan experts say Parent PLUS loans are dangerous for borrowers, so no, don't take them out, at least not if there is any other option.
According a recent blog post by the National Consumer Law Center (NCLC), Parent PLUS loans can be very dangerous products compared to other kinds of student loans, for several important reasons:
1. the interest rates for Parent PLUS loans are higher than other federal student loans;
2. PLUS loans have "origination" fees of 4.2% compared to NO FEE for other federal loans;
3. There are no borrowing limits other than the total cost of attendance, so a parent or parents borrowing PLUS loans can get into serious trouble, and borrow more than they can afford to repay;
4. Parent PLUS loan borrowers are not eligible for Income-Based Repayment (IBR) options, making it harder to avoid default and the consequences of default;
5. If you consolidate a PLUS loan with other federal loans, you can no longer use IBR for any of the loans;
6. Like other student loans, PLUS loans are very difficult to discharge in bankruptcy;
7. If you default on a PLUS loan, you face the full weight of government collection powers, including wage garnishment, Social Security offsets and tax refund offsets. Also, there is no "statute of limitations" or time limit for the collection of federal student loans.
So if you want to help your child get through college, think twice before taking out Parent PLUS loans, for all of these reasons. If you later find that you cannot pay them, you may find yourself paying them back out of your Social Security benefits, or with funds that you need yourself for your own needs, like retirement!
Sallie Mae is calling me to collect my student loan. Can I change student loan companies?
No. You don't get to choose which company services or collects debt from you, sorry.
Sallie Mae "originates" private student loans of its own, but they also are the "servicer" of some loans, and act as the "collector" of other loans. The loans that they are collecting from you could be federal loans or private loans, there is no way to tell just by knowing that Sallie Mae is calling you to collect.
But in any event, if they are the servicer or collector of the loan, then they have been assigned that role by the owner of the loan. You cannot change the company that acts as the servicer or collector of your loan, but you may have other options to repay the loan that they are not telling you about, or that they misrepresented to you.
I have had student loan debt collectors lie to my clients and lie to me about the repayment options that my clients have. One client even called the Dept of Education and told them, "hey, your debt collector lied to me," and the Dept of Educaton rep said, "well yes, sorry, but they do that." It has to do with how the collectors are compensated - commissions. It's really a national disgrace, is what it is.
If you have having problems with your student loans, cannot pay them and do not know what to do and live in the Houston, Texas area, contact our law office at 713-772-8037.
How can I protect the co-signer on my private student loan? They are threatening to sue her!
If someone co-signs a student loan for someone else, it is a serious thing. Many people don't take it seriously enough. Generally speaking, a co-signer that signs a promissory note for a student loan is agreeing to be liable for the entire debt, if the main borrower defaults. The debt collectors don't want to hear any excuses.
If you have a student loan with a co-signer, it is likely a private student loan. Private loans are like an unsecured bank loan, or unsecured credit card, they are just not dischargeable in bankruptcy. And if you don't pay it, you and your co-signer could be sued, and a court judgment entered against the both of you.
You and your co-signer's bank accounts and non-exempt property could be seized by a sheriff and sold at auction to satisfy the judgment.
If you want to protect your co-signer from these collection actions, you can file chapter 13 bankruptcy, assuming that you have regular income and you qualify. If you file chapter 13, there is a "co-debtor stay" that protects your co-signers.
So long as the co-signed debt is a consumer debt, and so long as you propose to pay the debt in full (or cure the delinquent amount) during the chapter 13 case, your co-signer is protected by the Bankruptcy Court "automatic stay" and cannot be called, sued, or anything else for the co-signed debt, so long as you comply with your plan and pay the plan payments.
If you are not sure of what to do, and you live in the Houston Texas area or surrounding counties, call our law office at 713-772-8037 and make an appointment to come in and meet with one of our attorneys. There is no charge and no obligation for your first visit with us.
We accept bankruptcy cases in the following counties: Austin, Brazoria, Brazos, Chambers, Colorado, Fayette, Fort Bend, Galveston, Grimes, Harris, Madison, Matagorda, Montgomery, San Jacinto, Walker, Waller, and Wharton Counties.
I am in default on my federal student loans. How do I rehabilitate them to get them out of default?
Under the Dept. of Education (ED) regulations, you must make 9 "on time" payments over a 10 month period of time. You can contact your loan servicer and discuss rehabiliation. If you don't know who your servicer is, or what the status of your loans is, go to the National Student Loan Data System website and look up your loans. You first have to set up an account.
What has been a problem in the past, has been that the loan servicers or debt collectors have wanted a higher monthly payment, than borrowers can afford to pay. But under new final ED regulations that become effective July 2014, if you cannot afford a regular payment amount, collectors must use the amount of your income-based repayment (IBR) payment, which should be much more affordable.
What can I do if I can't afford to pay my federal student loan payments?
If you have a federal student loan instead of a private loan, among other options, you may be eligible for an income-driven repayment plan. It is based on your income and family size, and your income can be as low as zero dollars per month.
You have to reapply each year, so your payment can go up based upon your income, but if you still owe at the end of 25 years, the remaining balance is forgiven.
You can find out more from your loan servicer, or if you are in default and need more help, you can hire our law firm to show you all of your options, including the income-driven plans.
Do I Have Options For Repaying My Federal Student Loans?
You have several options in dealing with federal student loans, unlike private student loans. This video by the Department of Education gives you an overview. If you cannot afford your regular payments, income-based or income-contingent repayment may be your best option.
We recently helped one man with $291,000 in federal student loan consolidate them and enter into an Income-Based or IBR plan. His payment? $340 per month! Of course, the Dept of Education will re-examine his income each year, so the payment can increase.
But at the end of 25 years, any amount of his student loan that has not be repaid, will be forgiven by the Government. That is not a bad deal. And with federal loans, they can be forgiven if you become disabled or pass away. Not so with private student loans.
Can Income-Based Repayment or the new "Pay As You Earn" Repayment Plan lower my student loan monthly payments?
Yes. If you qualify, either Income-Based Repayment (IBR) or the Pay As You Earn plan (for new loans) can dramatically lower your payments on your federal student loans, if you have a "partial financial hardship."
There are other qualifications and conditions, but it is certainly worth investigating this option if you have federal student loans that you are having trouble paying, or on which you have defaulted. Parent PLUS loans are not eligible for Income-Based Repayment or Pay As You Earn repayment options.
You really don't need a lawyer to learn about your options and apply. We do represent people with student loans if they wish to hire us, but if you are diligent and have the time to learn about your options, you should be able to find options that work for you, yourself. To start, see the links on this website for student loans under "Resources."
I have large student loans and I am so ill that I can't hold a job. Can I ever discharge the student loans in bankruptcy?
Yes, it may be possible, but it is not easy. In a recent case in Houston, a bankruptcy judge ruled that a debtor is not required to prove the existence of a completely debilitating medical condition in order to establish "undue hardship" under the Bankruptcy Code, so that a student loan borrower could discharge his loan.
If a debtor can demonstrate that some condition will, in all likelihood, inhibit the longterm ability to repay the student loan debt, at least one element necessary to discharge the debt has been satisified. Moreover, a debtor is not required to present expert testimony to corroborate his own testimony about his health. But it is not an easy burden; you have to be so ill that you are basically unemployable.
Remember, if you are totally disabled, you can seek to have your student loans forgiven by the Department of Education under a "disability discharge," but they must be federal student loans. Private student loans usually do not provide for disability discharge.
What is income-based repayment?
If you are having trouble paying your student loan bill each month, there are a few options you can consider. On the extreme side of the spectrum, some people file for bankruptcy and claim "undue hardship" as a way to get their student loan debt completely discharged.
However, if you are having trouble paying your debt off, but could probably handle it if the payment were reduced, you may want to think about income-based repayment.
An income-based student loan repayment plan may be available to you if you qualify for partial financial hardship. An easy way to determine if you're eligible is if the amount you pay monthly under a 10-year standard repayment plan is higher than what you would be required to pay under the income-based repayment plan.
Once you qualify for an income-based repayment plan, your monthly payment amount is valid for one year. You can file for the income-based repayment plan each year, but your monthly financial obligation will fluctuate as you make more or less money. Your payment amount will be based on your income and family size and payments will be made over the course of 25 years.
Not every kind of student loan is eligible for income-based repayment. These ineligible loans include any PLUS loans made to parents, FFEL Consolidation Loans that include underlying PLUS loans made to parents, and private education loans. The following loans from the Direct Loan Program and FFEL Program are eligible for income-based repayment:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans without underlying PLUS loans made to parents
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- FFEL PLUS Loans made to graduate or professional students
- FFEL Consolidation Loans without underlying PLUS loans made to parents
If you are having student loan issues and you're not sure what to do, contact Houston student loan debt attorney J. Thomas Black for a free consultation at 888-707-1233.