Seniors and Student Loans--Stopping Collections
Updated: May 16, 2020
An increasing number of our senior citizens are faced with the same problems faced by many of our young adults: student loans. A recent PBS story, "More older Americans than ever are struggling with student debt," highlights an issue that many bankruptcy attorneys have seen in recent years. As the article notes, " The number of Americans age 60 and older with student loan debt quadrupled between 2005 and 2015 to nearly 3 million. And the average amount they owe has nearly doubled from $12,000 to almost $24,000." That's a lot of debt -- my cheap calculator doesn't have enough digits to display it, but it works out to about $72 billion dollars.
[Grand]Parent Plus loans, co-signing on private student loans, children and grandchildren who go into default on these loans, and even old, unpaid student loans they took out years ago are all resulting in collection efforts against seniors who just wanted to help a child or grandchild get a college education. And once a loan goes into default, the powers of the student loan collectors are massive.
If a government loan, there is no statute of limitations, meaning that they can collect, quite literally, forever. I once had a client who was sued in 2014 for a student loan from 1976. Perfectly legal. (I was successful in getting the Court to throw the case out of court because of a doctrine called the "statute of repose," meaning that because of the passage of time, my client could not have been reasonably have been expected to keep the records showing that he paid off the loan in the 1980s.) Government collectors can obtain an "administrative garnishment," meaning that they can garnish wages and attach your bank accounts without having to sue and get a judgment. They can even garnish your Social Security!
Private student loan collectors do have to deal with the statute of limitations, and do have to sue you before they can garnish or attach.
What are your options if you are faced with a student loan in default? One option that you may not have considered is a Chapter 13 bankruptcy.
"I thought you couldn't declare bankruptcy on student loans" most people say. Not always. Depending on circumstances, it nevertheless can be difficult and expensive to obtain the discharge in bankruptcy of student loans. But a discharge isn't always necessary for a Chapter 13 to help.
When you file for Chapter 13, a provision of the Bankruptcy Code called the Automatic Stay goes into effect immediately. The Automatic Stay prohibits all creditors--including student loan creditors--from taking any action that could be considered an attempt to collect a debt from you or your assets. They cannot call you. They cannot send you nasty letters. They cannot send you bills. They cannot sue you, or continue with a pending lawsuit. They cannot attach, garnish, repossess, or foreclose on your assets. All proceedings immediately stop. The Automatic Stay remains during the entire course of your case, five years for a typical Chapter 13.
What do you need to do during that time? You have to make a monthly payment to a trustee, who takes that payment and distributes it to all of your creditors. How much will that payment be? It depends on your circumstances. But many of my senior clients in these circumstances have little more than Social Security and a small pension as income, so their payment is small--$25.00 a month. And as long as they make it, the Automatic Stay completely protects them from all collection efforts.
A Chapter 13 isn't a long-term remedy -- until Congress changes the law to again allow for the discharge of student loans, it usually will not result in the discharge of the student loan. But it will stop the immediate problems, the calls, letters, garnishments and attachments. It will relieve a significant amount of stress, both emotional and financial. It will let you move forward instead of being dragged backwards. It will let you live your life free from the student loan collectors. It is something to seriously consider.