Student loan defaults are increasing dramatically! As a result, there are a lot of lawsuits and collection activities. What happens in many student loan cases is students—especially minority students are victims of fraud. This happens when the school and the lender know the education the student receives from them will not enable the student to repay the loan. Never-the-less, the school sells a worthless education to the student to make a profit. The lender then sells the unaffordable loan to the student. Of course, they make a nice profit on these loans with both insurance and government guarantees. Obviously, the student is not important to the for-profit lender and school.
Kentucky Student Loan Lawsuits Dramatically Increasing
Unfortunately, many minorities and others are taken in by private for-profit schools. Then, the education they receive does not allow the student to repay the debt. When this happens, students can seek deferments until they run out but, the loan eventually goes into default.
It’s no surprise that these loans are going into default by the millions. Although federal student loans have many programs that can save a student from the default (at the cost of taxpayers), private loans are guaranteed to fail. However, we defend private student loan lawsuits in state court or file a bankruptcy to defeat them.
The Bankruptcy Option for Louisville Student Loan Lawsuits
Bankruptcy can discharge VA and also most other student loans with service connections. This happens automatically because separate statutes enable them to discharge after five years or no waiting period. But, the majority of student loans require that a student qualifies for undue hardship. Even if a student cannot get a discharge, filing bankruptcy is often a good way to make the loan either affordable or uncollectible. In bankruptcy court, Chapter 13 is very effective.
If private student loans are a problem there are many defenses in state court. These defenses include the statute of limitations in Kentucky that states if the loan is not paid for 15 years then, the loan is uncollectable. The statute of limitations in some states only requires the loan to be 3-5 years old to be uncollectible. But, please be aware that in some states like Kentucky, if you make a payment on the loan, it restarts the statute of limitations. Additionally, merely filing a Chapter 13 and moving to a state with a shorter statute of limitations defeats most private student loans.
Some of the Defenses to Private Student Loans
Government loans have few defenses. The statute of limitations and age of majority defense does not apply to those loans. However private loans often age until they are uncollectible. Federally funded student loans have not been dischargeable since 1998 except when a judge finds “undue hardship” of the debtor. This should allow the loan to discharge.
Since 2005, student loan debtors have had to prove “undue hardship” to discharge private loans. Since 2005, private student loans that are over five years old are automatically dischargeable if you file for bankruptcy. However, proving undue hardship in an adversary proceeding is a separate lawsuit that the low-income debtor normally can’t afford. Interestingly, studies show about half of the undue hardship lawsuits succeed. If you file an adversary, the lenders might offer a settlement on favorable terms rather than explaining the circumstances to a judge.
Do you need help managing your student loan? Contact my office right away to start the conversation. Nick C. Thompson, Attorney: 502-625-0905