Trade School Loan and Bankruptcy Final in 1986
Letter to “Ask Leon”
I filed bankruptcy in 1985, finalized in 1986. Included was an Illinois loan for beauty school. The loan was not disputed and removed from my credit report. The attorney who handled the bankruptcy led me to believe that all debt was discharged. Now a company (collection agency) is hounding me for payment. The attorney I used no longer does bankruptcy and will not speak to me. This loan was disbursed in 1980. How long can they continue to hound me for something that was removed from my credit as included in a bankruptcy and is now 26 years old? In addition, this loan was for $2500 and claims are made to owe over $9000.
I’m afraid I might have some bad news for you, along with a suggestion on how to try and resolve this. The bankruptcy law as it existed in 1985 provided that governmental student loans were not dischargeable unless the loan had been in “repayment” for at least five years BEFORE the bankruptcy was filed. “Repayment” meant that the monthly installments required on the loan had already begun, and the time that a loan was in deferment is not counted towards meeting the five years total that you need. Most trade school loans provide for an automatic payment deferment for 6 months following graduation. Thus, you don’t have to start paying the money back until 6 months later. The effective date for this requirement is your filing date, not the date that the bankruptcy was final. Thus, when you filed bankruptcy in 1985 it is certainly possible, or at least unclear to me, that your bankruptcy met the criteria that the loan had been in a repayment status for at least five years. We have to know the exact date you left school, and the exact date that the first payment came due, and the exact date that you filed bankruptcy. Let’s assume that you filed bankruptcy on December 1, 1985. In order to discharge the loan, the first payment had to come due prior to December 1, 1980, to make the five years that is required. Because the six month deferment would make the first payment due six months after graduation, you probably would have had to graduate prior to June 1, 1980. You said the loan was disbursed in 1980. To make this dischargeable, you needed to get the loan AND complete the school AND graduate prior to June 1, 1980 AND file your bankruptcy more than 5 years AFTER the 6 month automatic deferment. That assumes a lot! If you graduated after June 1, 1980, the loan was probably not in repayment for 5 full years before you filed bankruptcy. The fact that your credit report dropped this does not decide the issue. The courts always have the final say on disputes, not credit bureaus. Moreover, there is no statute of limitations on the collection of a federal government student loan. My suggestion is that you retain some other capable local bankruptcy attorney to challenge the collection agency with a response stating that you dispute the validity of the debt and that even if it can be established that you were the borrower, that you had a bankruptcy in 1985 that discharged any such obligation if in fact you ever did owe it. Furthermore, I would make a demand upon them to set forth with specificity the exact reasons why they contend that such obligation, if it really is yours, was not discharged. After so many years, they may not have sufficient documentation to prove who the borrower really is, and they may not have the legal expertise to counter your position that such debt was discharged anyway, even if it was really your debt. Subsequent amendments to the law, (which do not affect you but may be of interest to other readers) changed this “5 year rule” to seven years effective on November 29, 1990, and another amendment effective October 7, 1998 made such loans completely non-dischargeable, except in very unusual circumstances.)