Timeline from threat to garnishment, and a few other questions.

[lotsahats]

Hi, everybody!

It's been a few days since I've been here. I stressed myself out with information overload before I filed, so I thought it best, now that I am filed, to take a break from this forum, until there is actually some news to share.

I'll tell you, though, I cannot express how incredibly relieved I am to finally have filed.

I'm here now, with a question for a family member of mine. Last week, she got a letter from a student loan collector (a debt which bankruptcy won't help), threatening garnishment. I was just wondering, how long they have before they actually start taking money.

I really couldn't give her much advice, because I didn't want to be too nosy about her financial situation, and she didn't really want to talk (or think) about it, so after a question or two, we dropped it. Plus, God knows I'm not one who should solicit bankruptcy advice, and her situation, although not really that complicated, is still a bit more complex than mine.

I told her that, although bankruptcy will not discharge a student loan, maybe a bankruptcy attorney would be able to help her find a non-bk solution. Was that good advice?

She said that bk might be in her future, but she is loathe to go that route, because the immediate problem--student loan debt--cannot be helped. Without prying too much, I got the impression that she and her husband are robbing Peter to pay Paul (she mentioned recently using the card to buy groceries). She is also afraid of losing her house in bk, but they have only lived there two years, so I don't imagine they have very much equity in it. Correct me if I'm wrong, but if you don't have a lot of equity, and are current on the mortgage, then you get to keep your home, right?

And, regarding the student loan, although the debt is nondischargable, the automatic stay still applies, right? If that's correct, then bk will at least buy them some time before the garnishment. But, then again, having recently used the card, they'd have to wait at least 90 days, and, because of the garnishment, they might not have that.

Well, that's as much as I know about her situation. Any wisdom is appreciated.

BTW, they're in Georgia, if that helps. I also believe they're below median, but I'm not positive.

[SMinGA2]

As to the 'how long' part of your question - it would depend... If a creditor sent a letter 'threatening garnishment' then my first guess is they already have a judgment, so garnishment could happen at any time. Or student loan debt may not need a garnishment - I believe some of the rules that pertain to credit cards do not apply to student loans. If its a federal loan, I believe there are programs out there to bring it current - and once current, programs available to help get the payment more affordable. There is a student loans forum at credit boards dot com. Might be useful. (Though there is only so much you can do to help - since you don't know/can't get all the details.)

The automatic stay does apply to student loans, yes. Though its a temporary aid, only about 3 months for most ch. 7 cases.

About the house - if they are current/no major equity then they can probably choose to keep the house in a bankruptcy. Whether or not that is a good idea for them, depends on many other factors. Plenty of people over the years bought more house than they could afford, or had finances change so they could no longer afford it. Suggesting they seek legal advice, IMO, was good advice on your part. This would also be a good time for them to assess their budget. Compare what is coming in to what they have going out each month for living expenses. See where they stand.

As for the recent credit card use, if its just been for living expenses: probably not an issue should they need to file in the near future. Cash advances and 'luxury' purchases might be a problem though.

[karm43]

If she is not real behind they could probaly help her, I was behind 2 months and they said just start making your normal payment and they put the 2 months at the end of the loan. However, depends on who the loan is with. May buy her a little time. We all know when you have to use credit to buy groceries not a good sign.

[lotsahats]

Thanks for the input. They are pretty far behind on the student loan--it's their lowest-priority bill--but, as far as I know, they have not yet been sued.

Another question that popped into my head...

Say they aren't eligible for a 7, or, for whatever reason, they opt for a 13. What becomes of the student loan during the duration of the plan? Would it be included? Would the collector be able to sue/garnish, or would they have to wait out the three- to five-year period?

Oh, and, is it correct that, if you're below median income (and I believe they are) then you're only required to do a three-year 13?

[bcohen]

What kind of student loan are we talking about? If this is a federal student loan, then the collection agency can pursue administrative wage garnishment of 15% without having to file a lawsuit or win a judgement. If this is a private student loan, then the student lender (or CA or guaranty agency) must first file a lawsuit, and then win a judgement in order to garnish anything. In many states, the debtor has a right to contest the garnishment on hardship grounds, and the court may severely limit the amount which can be taken.

In any case, during bankruptcy, the automatic stay prevents any collection action--including lawsuits and garnishment--even for student loans.

[SMinGA2]

If they do a 13, for whatever reason, the student loan is unsecured debt in the plan. Such as if their payment works out so that 20% of unsecured debt is paid off, then the student loans will get some payment during the plan. But they can also continue to charge interest, and your relative would still have a balance owed after the plan is completed.

If you are below median, you have the option of a 3 year plan. There could be a reason to do a 5 year however. Say you have something that must be paid off in the plan. Scenario:
$15,000 in mortgage arrears
$2,500 attorney fee
Let's assume the trustee fee is 10% so 90% of your payment goes to the above. If you can manage DMI of ~$550/mo, you could manage to pay that off in 3 years with pennies going to unsecured debt. But if your DMI was only $350/mo, it would not be able to resolve those things in 3 years so you could propose a longer plan. (Not longer than 60 months of course.)

[lotsahats]

It's Sally May. I'm not sure if that's federal, or private.

[bcohen]

Sallie Mae is a private student lender. As such, they are like any other unsecured debt, except that the debt CANNOT be discharged in bankruptcy. Unlike the federal student loans, they DO NOT have to offer any sort of income-based repayment options, they DO NOT have to allow for the loan to be rehabilitated, and they are permitted to declare the loan in default simply for declaring bankruptcy--and to continue to update monthly and damage your credit until every last cent has been repaid.

So I suggest that your "friend" wait until Sallie Mae files suit--since they can't do anything without first suing and winning a judgement--and then AS SOON AS THE SUMMONS ARRIVES, file for bankruptcy. Assuming sufficient disposable income to fund a Plan, Chapter 13 is best for dealing with this kind of debt.

[LadyInTheRed]

Sallie Mae used to be an originator of federal student loans before the government started lending directly. If the loan was issued before July 1, 2010, it might be a federal loan.