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
1 discover $3k
1 discover $5.2k
1 first usa bank $5k
rep by craner, satkin,scheer, and schwartz p.c
320 aprk ave, scotch plains, nj
1 providan bank $2.8k
General Debt Advice
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.
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.