Student Loan Debts in Default with Credit Cards in Collection.
Posting here as per Michael's advice to do so. My situation:
-2003 I fell on hard times when was diagnosed with Synovial Sarcoma (cancer) in college, beat it after a 2 year battle and many rounds of chemo
-I accumulated alot of cc debt and medical debt, 4 cc ended up filing judgements and winning in 2008 (I never appeared)
-Aprrox. $20,000 other cc, medical, business/personal debt thats on my credit report, all unpaid since 2006
-4 cc judgements total about $16,000 as of 2010
-the one judgement garnished $100 from a bank account, which I closed immediately, and have never had one since 2008. The judgements have received nothing since then, not a dime more.
-I have not had a job on paper since 2008 because of this.
-I have not filed a tax return since 2008, the 2008 refund was taken by the student loan people.
-I graduated from college in 2005, and have not paid on my college student federal loan debt (now $29,000) since 2006.
-my grandmother is willing to help out a little if I can get the debts reduced a whole lot. I can get $6,000 cash to pay off judgements.
-I know I need an order from the lawyers who filed the judgement so that the courts can vacate the judgements
-I'd really prefer to settle judgements with cash, and pay off my studen loans in cash (can settle them for ~70% I believe)
-the following amounts are as of 2010 and probably are higher now
4 judgements broken down as follows......
Ralph Bulko of Pressler & Pressler
Parsippany, NJ
1 discover $3k
1 discover $5.2k
1 first usa bank $5k
Portfolio associates
rep by craner, satkin,scheer, and schwartz p.c
320 aprk ave, scotch plains, nj
1 providan bank $2.8k
General Debt Advice
—Travis Klein
Thanks for moving the conversation over to a new page Travis. With all of the additional details you provided, I get a much clearer picture. I want to start off with the student loan debts that are in default first. Now that I know about the student loans, the rest of the picture involving the credit card debts will be secondary. I know that you are looking to settle the credit cards that have judgments against you (Discover, First USA, Portfolio Recovery Associates), because of your comment on the article about settling judgment debt found here: https://consumerrecoverynetwork.com/question/can-you-settle-credit-card-judgements-like-other-debts-stressed/
I said I would have feedback and tips for you to consider when settling these, but I am going to run through the issues I see based on what you shared first.
Defaulted student loan debts with a federal guarantee cannot be settled in the way other debts can be negotiated.
Student loan debts started to gain a favored status for collect-ability in the 80’s. I won’t go through the history of how student loans, especially government guaranteed student debt, gained the status they enjoy today. Make no mistake though; your student loan debt is a priority over settling the credit card judgments.
Here’s why:
Student loan debts backed by the federal government cannot be settled (at least not in the traditional sense) for less than what you owe. You currently cannot even discharge student loan debt in a chapter 7 bankruptcy unless you meet very stringent hardship qualifications that show you face limited income for pretty much… ever. This carve out for student loan discharge in bankruptcy is therefore limited to major health concerns, or outliers that have to do with the school closing while attending, conditions that prevent you from working in your chosen field etc. The criteria are very limited. You graduated, received your degree, and beat your cancer. You would not likely be able to discharge the student loan debt, and cannot settle student loans in the traditional sense.
There are more and more changes coming to how student debts can be managed through alternative programs, and even more definition to how student loans can be discharged in bankruptcy.
Rehabilitating student loans allows you to qualify for income based repayment plans and consolidation.
You do have options with federally backed student loans that are not often available with private student debt. One of those options is an Income Based Repayment Plan (IBR). You would likely have to get your loans out of default to qualify for an IBR. Once the loans are brought out of default the income based test can be applied. This IBR program would set an affordable monthly payment plan for the student loan debts. The payment would be fixed unless/until your income increases. The IBR plan can go to 25 years. Any balance owed after that would be forgiven and eliminated.
You can go here to learn more: https://studentaid.ed.gov/repay-loans/understand/plans/income-based
Why am I pointing all of this out first?
Your comment on the other thread mentioned wanting to avoid bankruptcy by settling the credit card judgments with the 6k you have available. In the above post you mentioned settling federally backed student loans at 70% – which cannot be done today. This may change in the future, but myself and others have been adding this “may change” caveat to this discussion for several years. The truth is, no one knows when/if changes to discharging student debt in bankruptcy, or settling at a reduced pay off will occur. So, developing personalized strategies for the now is how to proceed.
The available cash of 6k to settle 16k of credit card judgments is a stretch. Not impossible with the medical hardships that led to the debts and nonpayment, lack of employment, a mangled credit report profile with no fresh credit, and other details I can pick out. But here is the math I want to focus on based on what you have shared so far:
National average cost of a chapter 7 bankruptcy is roughly 1800.00. It can go higher on the coasts. In New Jersey let’s assume you can get the whole bankruptcy done from start to finish with 2000.00. That’s attorney fees court costs – all of it.
With the 6k you referenced as available that would leave you with 4k to rehabilitate your student loans and get them out of default. Once out of default, your monthly payment on the income based repayment plan will be set at a percentage of income. With little to no income that monthly payment would be extremely low.
You would discharge all credit card debts including the judgments, all medical bills and business related debts still hanging out there. You would only have the student debt to contend with, but with a payment plan consistent with your income. As your income increases, your payments on the student loans would too. But the key here is that you are addressing the one priority debt that cannot be settled, or discharged, while still able to move on with your life and start to plan for your financial future.
Settling your judgment debt with Discover, First USA, and Portfolio Recovery Associates (PRA).
A deal is a deal. I commented I would have feedback about settling your debts on the other article if you provided more details by starting your own page. While I do not like the approach of using the available cash you have to settle the judgment debt now that I have more of the bigger picture, you may have very valid reasons for wanting to avoid bankruptcy. If that is the case, you at least can put the student loan issues you face in context. You will likely find you have to deal with student debt at some point, and while now makes the most sense from the outside looking in, you of course can bring the loans out of default and get on an IBR plan later too.
Settling judgment debt is typically achieved at a higher rate than if the credit cards with Discover, First USA, and PRA had not gotten judgments. Having said that, I mentioned above that the health issues and lack of income plays to your favor. Here is how I see it:
Settling Discover credit card debts without a judgment does not generally happen lower than 40% based on today’s trends. Judgment debt is rarely settled for as low as 40%, but there are exceptions. In the cases I have seen or worked on, your profile fits the exceptions. Targeting 25% as a settlement may work out. But you really should be prepared to hit resistance at 50%. I will be blunt and tell you that Pressler and Pressler are no picnic, but with the hardships involved, how long it’s been without any payment, ability to turn up a dime from a levy etc., and the fact that you have, and can continue to live on a cash basis, I like your chances with a departure from the norm for settlement with Pressler & Pressler on the Discover debts.
Settling the First USA debt looks like it may be with Pressler & Pressler from what you shared. The same principle applies with this settlement as with Discover.
Settling with Portfolio Recovery Associates will have similarities to settling with Pressler and Pressler on the other judgment debts, but you should have a somewhat smoother experience with CSSS PC. It would still be wise to have an expectation of settling the PRA account at 50%, but your circumstances suggest a much better deal can be achieved based on my experience.
Your hardship explanation for settling the debts and targeting the best savings.
Your situation is made somewhat easier when you are limited to the 6k from a family member. The cash limitation means you get to outline your situation with conviction. There is 6k to settle 16k of credit card debts. No more is available. Pressler and Pressler has the bulk of the debts, so lets assume 5k-ish is earmarked for those debts. The Providian account would get the rest. Providian is not even around anymore, so that debt should prove to be owned by someone else at this point. If the CSSS firm is not able to assist (they may not know who the debt was even sold to, if someone different than who hired them). Finding the debt owner may take some additional effort. If you do follow through with the settlement plan, instead of bankruptcy, and cannot locate the Providian account, let me know and I can walk you through some extra steps to locate it.
Negotiating these debts is best instigated with a phone call. The dialogue will consist of pretty much what you shared in your above post. You would focus on your fight with cancer as the cause of the debt spiral, and the long recovery led to the judgments. The job market in this economy is abysmal and only compounded by the fact that your work history has a huge gap from the health issues you overcame. Anything you have found is pick-up work at best. You have only xxxx.xx amount of money to work with, and that is only because a family member has offered to either help you resolve the credit card debts, or help pay for bankruptcy and bring your student loan debts out of default.
You have time on your side right now. You may not be able to get an agreement to settle on the first or second call. If that is the case, time your efforts for the beginning of the last week of each month for a couple of months. If you are not able to soften the judgment creditors to settle at the amounts that you need to meet in order to hit your goals (and cash limitations), than consider bankruptcy, which from a dollars and cents perspective is the clearer path anyway.
Why avoid bankruptcy in favor of settling the debts?
I always respect someone’s decision to want to, and try to, avoid bankruptcy. Doing the kind of work I have done for the many years I have, there are compelling personal, philosophical, and spiritual reasons that motivate people to look for alternatives. Even in the face of clear mathematical facts showing bankruptcy to be the best tool to get where one is headed with their personal financial goals. There are certainly times where I am sure I did not have the benefit of the full picture of the underlying concerns someone has for settling debts rather than discharging them. This is made more so when limited to online communications.
I support any decision you make, for the reasons you make them. I am here to support you through the decision making process, and provide feedback and the benefit of my experience along the way if you opt for settling. My suggestions and reasoning I laid out about discharge all of the other debts, and bringing the student loans out of default, is what I would do in your situation given the information you have provided.
Please post any follow up reply, additional information, or new questions in the comments below. My own immediate question for you would be; are there other factors that would prevent you from filing for bankruptcy?
Note: Anyone who has concerns similar to what Travis is faced with is welcome to post questions and participate in the comments. It is especially important to stay up to speed on options for handling student loans you cannot afford, so be sure to post about your issues on these debts below for feedback.
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry. He is available to speak with you about your financial struggle and helps people resolve their debt problems daily.
If navient and navient department of education held the 9 loans I had which now are consolidated some. When defaulted went to ecmc others to default resolution I have paperwork one saying they defaulted at the same time another saying that three defaulted 6 months after the others all the dates and numbers are off I had three tax offsets and my first three which was 8668 turned into 19000 with them taking about 20000 in tax returns consolidated for 430000 and on ibr and balance is 48000
Thanks for those details. What is your question or the goal you are trying to accomplish?
@Lynn, Thanks again lynn. My wife and I do not file Joint returns. Could they take her return under those circumstances? Also, I have a Job but it is with a temp. service and is do to end around March 2013. I was unemployed for 5 years befor that. would that be able to stand as grounds for a settlement offer? My Loan was a Fed. Direct Student Loan. What info can you give me on settleing this type of loan?
Thanks,
Shawn.
@Shawn….yes they CAN intercept her tax return if you file jointly. The solution is to file an injured spouse, form 8369.
Settlements can and do happen very quickly. When I was collecting, I could get settlements approved in 24 hours if the borrower indicated they had the funds in hand. On a few occasions, I had them approved within an hour. (Have one settlement of $112,000 on a $140,000 loan approved in 5 minutes..borrower called from the bank with a banker…we did a 3 way call with EdFund. We paid for fedex to pick up the certified check.) Hardship approvals….had a couple….they took maybe 2-3 days. They didnt happen often. One hardship that was approved was an old default where the borrower was marrying and moving overseas permanently. Due to their age and language barrier, they were unlikely to ever be employed. Another settlement that pops into my mind was an old default and the borrower was hitting retirement age and were not in great health.
An inheritance came thru and she got about a 60% settlement.
@Lynn, Thanks for your response. My Loan was not Private. It was Federal Direct Studenty Loan taken back in the 80’s. it went into default some 24 years ago, so no payments have been made. So far, I have heard that they can’t garnish my wifes wages. But I need to no if the can intercept her TAX return or not?.
@ Travis, I am surprised that they havn’t gotten further with your situation. Have you sent in a settlement offer yet?. What is the difference between ASA and the ‘CA’?.
thatnks,
S.
Hey Lynn, thank you for the insider input.
ASA were the ones who offered outright 85% of a payoff amount. At the point that was offered I had not spoken to the CA yet. When I got around to calling the CA they indicated in special circumstances the ASA will sign off on a settlement offer, which has to be paid in full within a 3 month time period.
I only spoke with one person there and after hearing this from you, I am going to call back firs thing next week to double check I did not get false information.
West Asset Management is the CA btw. I will post back ASAP with the findings.
I am a former Canadian attorney now living in the US. After I immigrated I spent almost a decade working as student loan collector, collecting for many FFELP guarantors (CSAC,ASA,CSLP, NELA, Great Lakes, TXGSLP,Ohio, TX, OK, NC and a few more. I also collected and collected and administered wage garnishments for the DOE. After my agency relocated, I went to work as a financial aid officer for a major midwest University…so I have worked both sides of the table.
Travis…you will not receive any response in writing from either ASA or the collection agency. All settlements need to be done verbally over the phone with the collection agency. The CA may require supporting documentation to be faxed but bottom line is they are not going to negotiate thru the mail. If unemployed, they will want to know a reason why. ASA from my experience will only waive a portion of the collection fees. Collections are federally mandated and are charged by the guarantor….the CA earns between 7% and 9% as their collection fee and ASA would want that expense covered…that would be the reasoning between their offer of an 85% settlement.
Shawn…private loans. They will accept payments but be prepared to be sued even if you are making payments. This is pretty standard. Best you do if/when facing this situation is to get a contingency judgment, which allows you to continue making payments without being garnished or your bank account being levied. Miss a payment and the agreement is gone.
Private loans cannot take your taxes and they cannot garnish a spouse.
I check this often. I have not contacted either the collection companies or student loan people. When I contact them first I will update it here that way we can know the time frame it takes to get a response, and then I will update once again when I receive the letter with their response. I will scan and upload it so people can see.
Hopefully my situation can help others.
Again, again, again, thank you a lot Michael.
Travis
Thanks that would be great. I have one other question I forgot to add in the last post. I was recently married. Can a Collection agency take my wifes Tax return against this debt if the the debt was accrued befor we were married? Can they garnish her wages?.
Thanks for all your help.
I have a Federal Direct Student loan. It has been in Default for over 25 years. yes it has been hit with PCA charges. I do know what PCA has the account now but I not sure who they answer too. They are on the Dept. Of Ed. list of PCA’s. No West Asset (as far as I know) is not handling this account. I not willing to say the name of the PCA in open forum like this. I am curious why you say that ” A Federal Student Loan can not be settled…” is the ‘Compromise And Write Offs Procedures’ just a hoax? Do you know what happened with travis settlement?.
Shawn – I do not know what happened with Travis. Given the timelines of the comment exchange, I would assume nothing yet. I do not know if Travis subscribed to the comments on this page. If he has, he may see this and post updates.
The published options for dealing with student loan debt are not a hoax. My comment about settling federally backed student loans should be read as “cannot be settled in the conventional sense”.
I am not sure where there is any need to be hesitant with identifying the PSA in comments. Your comments are anonymous. The only one who can see your email address is me.
I am going to ask a friend and former student loan debt collector to review this page and see if she would like to add any thoughts and suggestions.
Hi Michael,
(I typed in the wrong email).
My case sounds similar. My private loans are in serious default–which I thought were in forbearance/deferment. I’m in graduate school (again) and have not been employed full-time since 2007. So, I had both private and federal loans in deferment bc of school.
This summer I am told (over the phone) that I am years behind and payment is due in full, 20k. I have not received any notices by mail that my private loans were due (except 1 month ago by Fed-ex) but I have received letters in the past that provided me with the option to pay interest only. Perhaps, this was for the federal loans.
However, I find it much more difficult to work w/ private student loan collections. I am willing to pay ‘something’, but just can’t afford their payment options due to lack of employment. I really do not want garnishments-when I do find employment- or to be sued. Do you have any suggestions? Thanks!
Sam – Until you are in a position with a regular income that would support your ability to make consistent payments, there is really not that much I can suggest. When it comes to private loans, I agree that the options to manage student loans are limited. One thing to consider would be consolidating all of your loans through a federally backed program in order to shortly after, roll your loans into an IBR plan that is consistent with your income once you finish school. Have you consolidated before?
Settling private student loans are an option sometimes, but in order to do that you need the cash resources. Can you identify a source of funds that would make settling later this year an option?
I am in the same boat as travis. Except my situation has gone on much longer. I am also wanting to offer a settlement and have been trying very hard to find someone who has been successful in the doing so to get some advice. I am wondering wether it is better to go directly to the Dept. of Ed. first with a settlement offer or go straight to the PCA with an offer in accordance the ‘ Compromise and Write Off Procedures’.
Shawn – Taking this direct to the Dept of Edu is an option, but from experience may not be worth the effort. The collector can get everything done that can be done.
Are you saying your loans are in default longer than 5 or 6 years and have been hit with the 25% penalty? Is West Assset handling collection on your loan? If not West Asset, do you know who the loan is currently assigned to?
I called and found out that is exactly what went on with my student loans, they added 25% once it went into default. They are guaranteed by American Student Assistance, but in collections with West Asset Management.
I called ASA and they say a settle can take place for less, but I have to contact WAM. So I called them and they said I can submit a settlement offer, and they contact ASA and see if ASA will ok it. WAM says it is completely up to ASA.
So I am wondering if I could possibly contact someone at ASA via a letter of hardship just to let them know who I am, before I even send WAM my settlement offer.
I am going to look around and see if I can’t find someone at the company that’s in a higher management position and write them a personal letter of hardship. It’s worth a shot I think.
About the collections agencies with the judgements, do you have any advice as to what I should say when I call. Should I just start out by asking for a settlement. To be honest I am kind of intimidated to talk to them.
Thank you so much for the help!
Travis
Travis – Here is what I would do if I were negotiating and settling your credit card debts for you. You can take this feedback and implement variations of it in a way that works for you in your DIY settlement efforts.
Discover credit card debts are still likely to be handled by Pressler & Pressler. My realistic target for the settlement would be 60% of today’s balance because there are judgments in place. That would not prevent me from aiming for 30 to 40% settlements with the Discover accounts. I would aim there due to the hardships you have been through combined with what, I assume so far, is an extremely skinny credit profile you have, no income to attach, or bank account to levy. I would highlight the hardships and then focus on the available amount coming from a family member. I may even offer to bring her on the line during a negotiation call after some prepping. My offer may not be appealing on the first volley, but could become more attractive at the end of the current month, or the last week of the following month. I would likely add round dollar amounts (200.00 or 300.00) on follow up offers if there are clear indications that is what is required to hit a target they are held to.
First USA credit card debt may not be able to be negotiated with Pressler & Pressler at this point. I would like to know who has it before going into much feedback and targets, other than to repeat what I said about Discover accounts above. Once you know who has that debt post an update comment and I can offer more feedback.
Portfolio Recovery debt may be able to be settled direct with PRA at this point. I would outline the hardships and offer lower than 40% and hold. On this one I would hold for a couple months unless my client suggests they would prefer to knock this down and be done with it by offering a higher amount.
My outline above is based on what you have shared with me. Readers of this page who may be dealing with similar creditors, debt buyers, and collection attorneys may not have the benefit of time on their side like you do. People often do have to be concerned about wage garnishment and bank levies that would mean a more rapid resolution is needed, and higher percentages of settlements or payment options may be required.
The settlement of your student loan with American Student Assistance through West Asset Management for the discount you mentioned in your initial post would be at a rate were the 25% penalty not assessed (roughly). I suspect West Asset mgmt would get it pushed through for you without the need for you to connect with American Student Assistance. I say this because West Asset will likely only get paid when the settlement goes through. They are, oddly enough, going to be of help to you as your motivations are aligned, just for different reasons.
Ok I will double check on that, but I am very sure it is federally backed as I never took out any private loans. Also they took my tax return immediately in 2009. They for sure offered 85% as long as I can provide proof of income or lack of, and also my tax returns since 2008.
so you think calling is better than writing a letter of hardship and possible offer to settle, including information about my student loan debt, and owning zero assets, and not having filed a tax return since 2008? I feel like they need to know my full situation and a phone call just wouldn’t convey everything.
What do you think?
thank you so much!
Travis
Travis – If your loans are all federally backed, I would be curious to know if the 25% of balance penalty has been applied to your loans due to how long they have been in default.
Yes, I would suggest calling first. With the documentation they will request, you will have the opportunity to write in all of the details as a sort of cover letter.
When I called the student loan people the lady immediately said they would take 85% of the amount owned. This was just a normal telephone employee in front of her computer offering this.
So to think I could get it lower than that does not seem out of reach.
One factor for not doing bankruptcy is a possible inheritance in the near future, I know about the 180 days, and that would be a gamble at best, given the health of my family member.
Travis – Your initial info mentioned you had federal student loan debt. You just cannot settle that type of debt in the traditional sense. You may have private student loans and just not know for sure.
Here is a great resource for determining the types of student loans you have: https://www.studentloanborrowerassistance.org/understand-loans/finding-out-what-type-of-loan-you-have/
You can learn a great deal about student loan debts, and options available to manage them from this site.
You can look up whether you have federally backed student loans on this data base: https://www.nslds.ed.gov/nslds_SA/
Thanks for the additional detail RE bankruptcy. Settling would make sense given the concern you have. The negotiations begin with a phone call.