- A state Consumer Protection Agency warned that student loan companies may be “illegitimate” in collecting debt.
- It refers to a borrower who may receive a bill even if they have settled their debt through bankruptcy.
- Companies have been accused of taking advantage of the confusion surrounding bankruptcy proceedings.
President Joe Biden’s top consumer watchdog wants to dispel the “myth” that student loans can’t be redeemed through bankruptcy – while warning borrowers about bad practices by student loan companies when it comes to forgiving loans.
On Tuesday, the Consumer Financial Protection Bureau (CFPB) published a blog post detailing the process of clearing student debt in bankruptcy court and the challenges it faces. Specifically, the bureau wrote that while it is possible for private student loan borrowers to succeed in bankruptcy court, not only is the process difficult to understand, but student loan companies have been accused of violating layoff orders and “unlawfully collecting” debt . express “serious concerns”.
“Unfortunately, complaints filed with the CFPB suggest that some of these companies may be misrepresenting their bankruptcy protection offerings to borrowers — or worse, collecting debts that have already been settled by a bankruptcy judge,” the blog reads.
“Collecting debts settled through bankruptcy could violate not only the Consumer Financial Protection Act’s prohibition of unfair, fraudulent and abusive practices, but also an order of a United States bankruptcy judge,” he added.
—Rohit Chopra (@chopracfpb) April 12, 2022
For a borrower to be able to get rid of their debts in bankruptcy court, they must meet the undue hardship standard, which requires them to be able to show that they cannot maintain a minimum standard of living, their circumstances are unlikely to improve and they have a good one job done. faith efforts to repay their debts. In 2005, this standard was extended to include private borrowers of student loans, expanding the scope of those who would face more stringent requirements in court.
Since then, the CFPB noted, consumers have complained about the process. For example, one consumer wrote to the bureau that even though their loans were paid off in court, their student loan company continues to collect monthly payments, arguing that their loans could not be repaid.
If you believe you have been improperly charged for loans, the Bureau recommends documenting how much you have paid since the discharge from bankruptcy, retaining all documents related to the loan and bankruptcy, and filing complaints about your situation with the CFPB to submit.
The CFPB will “look closely” at bad behavior by student loan companies.
The Student Borrower Protection Center (SBPC) found in January that 2.6 million student borrowers could have discharged their debt through bankruptcy, but “predatory tactics” by private loan companies prevented them from doing so.
That realization prompted Senate Majority Whip Dick Durbin to get some of his colleagues to send a letter to the CFPB asking how the agency plans to hold these companies accountable, and the Bureau’s director, Rohit Chopra, pledged that the Step up oversight in a letter to Durbin received from insiders.
“I am deeply concerned that borrowers are being burdened with decades-old private student loan debt and possible unlawful collection efforts,” Chopra said. “I have directed CFPB staff to look closely at these issues, including whether companies are making false statements.”
Chopra added that the SBPC’s findings “raise concern about abuses of the bankruptcy system,” and the office will use its powers to “protect borrowers who are deprived of the relief they have received through bankruptcy relief or who are in breach of the protections to which they are entitled by law, be misled.”
Durbin recently called on Education Minister Miguel Cardona to reform the “unnecessarily high bar” that student loan borrowers have to clear in court, and he is waiting to see how the Education Department feels about forthcoming reforms.