Garnishment After Discharge

[brokemfer]

Silly question....just got discharged from my Chapter 13 last week, and I called AES (which holds my private student loans) to check on the process of setting up a payment plan.

Short story is they haven't received the paperwork yet, but since they were defaulted when I filed, I was told they would probably just start garnishing my paychecks in the next few weeks.

Is this typical? Will they go straight to garnishment without letting me try to set up a payment plan?

Confused & Dazed...

[justbroke]

They would need to sue you under the terms of the installment contract, win a judgment, and then they could garnish if it is allowed in your State. I would try to talk to their department that deals with bankruptcy and tell them that you just completed bankruptcy, your loan was in deferment during the Chapter 13, and you are now willing and able to get on a payment plan. I would think that a smart creditor would prefer a voluntary payment plan over litigation to obtain a judgment; I have been known to be wrong, so don't take my word for what a "reasonable" (smart) creditor should do!

However, I would make sure to speak only with people in AES' insolvency/bankruptcy department and seek a forbearance and then to establish a post-Chapter 13 bankruptcy payment plan. Again, if they are reasonable, they should voluntarily enter into this forbearance and repayment plan.

[AngelinaCat]

I would think that you would be given the opportunity to set up a payment plan, before they take steps to garnish. After all, the IRS does...

Good luck!

[bcohen]

If these are private student loans, then AES (the guarantor agency) cannot just "start garnishing [your] paychecks in the next few weeks". They would need to file a lawsuit, obtain a judgment, and could then attempt to garnish wages, levy bank accounts, etc. under your state's non-bankruptcy laws, which are not very generous. Usually, a creditor would try to collect through other means, and/or attempt to negotiate a payment plan before resorting to litigation, however since student loan debt cannot be discharged in bankruptcy, they may not care about the cost of filing a lawsuit, which would just be added to the judgment anyways.

In some states, after a judgment is granted, it is possible to request a hearing before the judge in order to have wage garnishment reduced or possibly even prevented under hardship grounds, especially if you are "head of household" with dependents. Another option would be to file another Chapter 13 if AES tries to garnish too much or won't agree to a REASONABLE payment plan. Some people file repeated Chapter 13's back to back in order to avoid being garnished for private student loans that they cannot afford.

[justbroke]

bcohen, the serial Chapter 13s can be a good idea, but the "good faith" requirements will probably be challenged. I suppose that if the debtor were to schedule the student loans AND put them in the payment plan and make payments over the life of the Chapter 13, that could overcome the good faith requirement.

[treehugger1]

Are you sure these are true private loans? All of my loans were federal loans through private banks. (They were guaranteed student loans.) I don;t know if all student loans are GSL types. But, I think that all GSL (of which AES generally collects for) do qualify for 15% administrative garnishment. This can get very, very confusing, as much of the student loan laws refer to specific periods of time loans were taken. It can be tricky to navigate, but it can be worth the effort.

I agree you need to contact them and explain your BK history.

[treehugger1]

I would like to comment on what BCOHEN stated about back-to-back bankruptcies. I live in Oregon, and local bankruptcy attorneys mentioned that some student loan debtors (attorneys, doctors, college professors, etc) live under a perpetual BK 13 situation. I don;t quite understand it, but I do know my personal physician is constantly in a BK 13 due to student loans. He seems to live way, way above any poverty BK 13 level. I don't know the details.

[justbroke]

Serial filing is not an issue if it is done in good faith.

[brokemfer]

Update. Got a call from another collection agency for a small loan, I offered to set up a payment plan, and I was told the only thing they would accept was full payment today. Right out of discharge, I didn't have 3 grand laying around, and I offered to pay $100/month until the balance was paid off, and they wouldn't accept.

This might get fun.