Archive for December, 2012


The problems with private student loans

Private student loans do not have the same range of powerful collection tools as the government.  Generally, they hire third-party debt collectors to pursue borrowers.  As such, they are subject to fair debt collection laws.  Private loan creditors can sue on defaulted loans and obtain a judgment and then employ traditional debt collection tools such as wage garnishments and bank levies.

That being said, private loans are still subject to the heightened bankruptcy dischargeability standards.

Unlike the federal student loan programs, there is no comprehensive federal law requiring private student lenders to offer particular types of relief or flexible repayment.  Private student loan borrowers are generally at the mercy of their creditors.  To that end, private lenders have been generally inflexible in trying to assist financially distressed borrowers.

Deferments and Forbearances

Most lenders provide an in-school deferment option.  However, interest usually accrued during the deferment period.  Now, many lenders are requiring that borrowers pay interest while in school.

Lenders may offer forbearance plans, but borrowers must affirmatively inquire about such plans and many private lenders that do offer such plans charge fees for forbearance requests.

Defenses if You are Sued

General contract defenses – forgery, mistake and fraud, for example – are available to challenge the enforceability of the loan agreement.  Statute of limitations defenses are also allowed for private loans (but no government loans).

A borrower can also sue a lender and/or the lender’s collection agency for unfair debt collection practices.  This won’t eliminate the obligation to pay the loan, but it may give the borrower leverage in negotiation as well as a set off against the amount owed.

Also, private lenders are subject to certain truth in lending disclosures.  Failure to meet such disclosures can give rise to a private cause of action against the lender

If you are having financial difficulty with a private education loan, please contact the Zarcone Law Firm at 619-800-3082 for a free consultation.


Did your school close? You may be able to discharge your student loans

The Secretary of the Department of Education is required to discharge a specified loan if you are unable to complete the program due your school’s closure.  The regulations provide this discharge if the branch of the school which the student attended closed.  For example, if you attended branch 1, there is no right to discharge if only the main campus or branch 2 closed.  On the other hand, if branch 1 closes, you have a right to a discharge even if all other branches stay open

The regulations provide for a discharge if you were still enrolled at the time of the school’s closure or if you withdrew from the school not more than ninety days before the school’s closure.

A school’s closure date is the date at which it ceases offering all programs at a particular branch, not when it stops offering the particular program in which you are enrolled.  Nevertheless, when a particular program at a location ceases four or five months before the branch closes, this would seem to be an appropriate situation for the Secretary to extend the ninety-day period because of the exceptional circumstances related to the school’s closing.

Borrowers can obtain closed-school discharges if the school closed before they completed a program, even if the school issued the borrower a diploma or other certificate.  On the other hand, if a student completes a program, there is no discharge even if the borrower never received a diploma or certificate.

You must apply for the discharge.  Guarantors must forbear collecting once you’ve applied.

If you have loans due for schooling you received at a closed school before receiving your certificate or diploma, you may be eligible to discharge your loans.  Please contact the Zarcone Law Firm at 619-800-3082 for a FREE consultation.


Property and Asset seizures to collect federal student loans

Federal student loan collection power have grown so much over time that the government rarely sues borrowers, opting instead for an array of extra-judicial collection tools.

Tax Refund Offsets

The tax refund offset program involves a blanket seizure of almost all tax refunds due to debtors who are in default on their student loans.  Amounts offset may include “special” payments such as economic stimulus refunds.

Bankruptcy and Tax Offsets

Filing a personal bankruptcy petition before the offset activates the United States Bankruptcy Code automatic stay provision.  The stay prohibits virtually all actions against the debtor’s property, including intercepts of owed tax refunds based on a student loan default.

Non-Judicial Wage Garnishment

Both the Higher Education Act and the Debt Collection Improvement Act authorize administrative wage garnishment.  This means you can have your wages garnished without having a judgment entered against you.  You can have up to 15% of your disposable pay garnished for default on a student loan.  Guaranty agencies can also garnish your wages.

Seizure of Federal Benefits

You can also have your federal benefits offset.  Offset is explicitly allowed against Social Security benefits for instance.

If you are in default on your student loans, please contact the Zarcone Law Firm at 619-800-3082 for a FREE consultation.


Student Loan Default Problems? Rehabilitation May be the answer.

If you are in default on your student loans, you can renew eligibility for new loans and grants and cure the loan default by rehabilitating the defaulted loan.

Loan rehabilitation for loans may be requested after you have made nine payments within 20 days of the due date during a period of 10 consecutive months.

Collection does not necessarily cease during the rehabilitation period.  It will only stop if the rehabilitation agreement specifically provides for an end to collection efforts.  Otherwise borrowers will continue to face the usual range of collection efforts, including tax offset, even though they have made a repayment commitment and are in the process of rehabilitating the loans.

Neither the loan guaranty agency nor the Secretary shall demand more from you more than what is reasonable and affordable based on your total financial circumstances.  This calculation includes both you and your spouse’s income and expenses including housing, utilities, food, medical costs, work-related expenses, and dependent care costs.  You will need to provide back up documentation.  Basically, the Department of Education sets out minimum percentages that you have to pay on your loans.  Of course, if you are dealing with a collection agency, collection agencies get more money the more you pay.

If you are in default on your student loans and would like to explore rehabilitating the loans, please contact the Zarcone Law Firm at 619-800-3082 for a FREE consultation.




No Dice for Debt Collector Contacting Debtor’s Employer

In Evon v. Law Offices of Sidney Mickell, the Ninth Circuit found that a debt collector’s letter to a consumer at her workplace addressed “personal and confidential,” “in care of her employer,” and bearing the name and return address of the debt collection law firm was a “per se” violation of § 1692c(b). The letter was actually opened by the employer and reviewed by the employer’s legal department before it was delivered to the consumer.

The court found that the debt collection law firm “should have known of the real possibility that a letter to a debtor’s place of employment, even one marked “Personal and Confidential,” would be viewed by someone other than the debtor.  This finding was attacked in a dissenting opinion that was unfamiliar with any practice of offices opening employees’ mail.  The court replied that debtors are often lower income workers with little say over their employers’ mail handling practices, and the debt collector should have guarded against this possibility.  The court relied primarily on the plain language of § 1692c(b) that prohibits debt collectors from communicating with any person except those listed in that section, and that list does not include employers.  The court noted that the legislative history of § 1692c(b) shows that Congress’ omission of employers from the list of permissible debt collector contacts was intentional.

The court did reject another consumer claim that a threat of judgment, garnishment, and attachment of bank accounts and other assets deceptively implied that judgment was inevitable or that all of the consumer’s wages and assets could have been taken.  The court found that the use of conditional language, “legal action ‘could’ result in judgment” and the omission of the word “all” by the debt collector rendered the statement accurate and not deceptive.

If you believe you have been the victim of an illegal debt collection practice, please contact the Zarcone Law Firm at 619-800-3082 for a FREE consultation.



Debt Validation Letters

Under the Federal Debt Collection Practices Act, you are allowed to challenge the validity of a debt that a collection agency claims you owe and they are trying to collect.  Below is a sample letter you can send to make the debt collector verify that the debt they claim you owe is actually yours and due and owing.  Be sure to keep a copy for you files and send the letter registered mail.  This is not legal advice and it’s always best to contact an attorney, you can contact us at 619-800-3082 or by going to our website.


ABC Collections
123 First Ave
San Diego, CA


To Whom It May Concern:

This letter is being sent to you in response to a notice sent to me on November 30, 2012). Be advised that this is not a refusal to pay, but a notice sent pursuant to the Fair Debt Collection Practices Act, 15 USC 1692g Sec. 809 (b) that your claim is disputed and validation is requested.

This is NOT a request for “verification” or proof of my mailing address, but a request for VALIDATION made pursuant to the above named Title and Section. I respectfully request that your offices provide me with competent evidence that I have any legal obligation to pay you.

Please provide me with the following:

•    What the money you say I owe is for;
•    Explain and show me how you calculated what you say I owe;
•    Provide me with copies of any papers that show I agreed to pay what you say I owe;
•    Provide a verification or copy of any judgment if applicable;
•    Identify the original creditor;
•    Prove the Statute of Limitations has not expired on this account
•    Show me that you are licensed to collect in my state
•    Provide me with your license numbers and Registered Agent

At this time I will also inform you that if your offices have reported invalidated information to any of the 3 major Credit Bureau’s (Equifax, Experian or TransUnion) this action might constitute fraud under both Federal and State Laws. Due to this fact, if you report negatively to any credit reporting agency I will not hesitate in bringing legal action against you for the following:

•    Violation of the Fair Credit Reporting Act
•    Violation of the Fair Debt Collection Practices Act
•    Defamation of Character

If your offices are able to provide the proper documentation as requested in the following Declaration, I will require at least 30 days to investigate this information and during such time all collection activity must cease and desist.

Also during this validation period, if any action is taken which could be considered detrimental to any of my credit reports, I will consult with my legal counsel for suit. This includes any listing any information to a credit reporting repository that could be inaccurate or invalidated or verifying an account as accurate when in fact there is no provided proof that it is.

If your offices fail to respond to this validation request within 30 days from the date of your receipt, all references to this account must be deleted and completely removed from my credit file and a copy of such deletion request shall be sent to me immediately.

I am also requesting that you do not contact me by telephone at my home or my place of employment. If your offices attempt telephone communication with me, including but not limited to computer generated calls and calls or correspondence sent to or with any third parties, it will be considered harassment and I will have no choice but to file suit. All future communications with me MUST be done in writing and sent to the address noted in this letter by USPS.

It would be advisable that you assure that your records are in order before I am forced to take legal action. This is an attempt to correct your records, any information obtained shall be used for that purpose.

Best Regards,

Your Signature
Your Name



Loan Consolidation as a Way Out of Student Loan Default


If you’re drowning in student loan debt you can consolidate defaulted student loans into a new Direct consolidation loan with a repayment plan tied to your income.  After obtaining a consolidation loan, the borrower gets a fresh start with a new loan.  After consolidation, you are eligible for new federal student loans, grants and even deferments.  The loans will also no longer be listed as in default on your credit record and no longer subject to tax intercepts, garnishments, or other collection efforts.

All federal loan borrowers may obtain Direct consolidation loans.  However, they must have at least one Federal Family Education Loan (FFEL) Program loan or Direct Loan Program loan (“Direct Loan”) to qualify.

There are some drawbacks including the following: your balance may increase after consolidation due to the addition of collection fees.  Also, you only get one shot – Direct consolidation loans cannot be re-consolidated.  To learn more please contact us here or call us at 619-800-3082.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 35 other followers

The content found on the financialfreshstart Blog is not legal advice and is purely for informational purposes. The Zarcone Law Firm does not guarantee the accuracy, integrity or quality of submissions. The information provided by the bloggers on this site may not represent the opinions of the Zarcone Law Firm or its affiliates. The information contained herein is not a substitute for the advice of an attorney.

lawyer blogs

Avvo - Rate your Lawyer. Get Free Legal Advice.

Tweets from The Zarcone Law Firm