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  1. #1
    Join Date
    Oct 2011
    Posts
    3

    Question Treatment of Private Education Loans in Bankruptcy

    My question involves bankruptcy in the state of: OHIO I apologize in advance for the length...

    While I was an undergrad in 2003 I took out 4 separate private education loans through Key Bank. In 2006, these loans went into litigation and I was ordered to pay approximately $26,000. With the help of a lawyer, there was an agreement that I would pay 100 dollars a month (due to my very low income at the time) and that every 6 months my income would be re-evaluated and my payments adjusted accordingly. No one ever contacted me to re-evaluate, nor did I contact them. I have been making the payment on time since 2006.

    Just recently I got divorced and have been in the process of trying to rebuild my credit. After speaking with a financial advisor, he told me to contact Key Bank and ask them to report to the credit bureau that I have been paying as agreed. Key Bank informed me that this was not an option and that they would not report anything to the bureaus until it was paid in full or until I settled out the debt. This surprised me because I was under the impression that all educational loans are non-dischargeable, meaning that settling was not an option not was bankruptcy. I asked the Key Bank rep what my payoff was and was shocked when she told me I now owed them $33,000 due to the interest that had incurred. Again, she told me that settling was an option and took my number and told me that someone from a different department would call me back about a settlement agreement. I was never contacted.

    I contacted the lawyer that had helped me in 2006 and asked for his advice. He stated that the fact that they said I had the option to settle rang bells for him. If settling was an option then were these loans really non-dischargeable and would bankruptcy be an option? He advised me to request the original promissory notes for each loan from Key Bank. (I no longer have my copies because of a very bad flood that destroyed these documents along with many other things.) When I requested copies from another Key bank rep, he told me that "due to the status of your account I cannot provide you with those documents. You will have to contact the lawyer and he can request them". I did not understand this but he was very adamant about it so I did not press the issue. I then asked the rep if he could provide me a contact number so I could give this to my lawyer so the lawyer could get in touch with the appropriate department. The rep told me that no, my lawyer will need to use his own resources. The representative also told me that he had no access to any of the original loan account numbers although he did verify that he could see that they were four separate loans.

    At this point, I am very confused. It was apparent that Key Bank did not want to give me any information about my accounts. I am wondering how I should proceed with this and, if this private education loan is dischargeable, either by settlement or bankruptcy. Any help would be greatly appreciated.

  2. #2
    Join Date
    Sep 2011
    Location
    OH10
    Posts
    17,019

    Default Re: Looking for Clarity Regarding a Key Bank Private Education Loan and Bankruptcy

    You should pay the debts you incurred, instead of paying a lawyer, to try and weasel your way out of them. They will stick with you until retirement and continue costing you more money. They will continue to play games with you, while you continue to flounder. They want you to come up with money to "settle", so they can collect it. Why should you be shocked? You are probably paying a default interest rate with late penalties factored in. Your paltry $100 does not even cover the interest.

  3. #3
    Join Date
    Jun 2010
    Location
    New York, NY
    Posts
    7

    Default Re: Looking for Clarity Regarding a Key Bank Private Education Loan and Bankruptcy

    Under the US Bankruptcy Code, educational loans are non-dischargeable in either Chapter 7 or Chapter 13 absent a court determination in an adversary proceeding. The fact that the loan was private or federally-subsidized is of very little consequence if any. The key inquiry is whether the loan was given for an educational purpose.

  4. #4
    Join Date
    Oct 2011
    Posts
    3

    Default Re: Looking for Clarity Regarding a Key Bank Private Education Loan and Bankruptcy

    What about the settlement issue? Would it be possible to settle out for less even though it was an educational loan? I did not use it to pay tuition.

  5. #5
    Join Date
    Sep 2011
    Location
    OH10
    Posts
    17,019

    Default Re: Looking for Clarity Regarding a Key Bank Private Education Loan and Bankruptcy

    They have no reason to settle for less. They will collect now or keep adding interest and collect when you retire. They gave you the loan to use for education.

  6. #6
    Join Date
    Oct 2011
    Posts
    1

    Default Re: Treatment of Private Education Loans in Bankruptcy

    Under the US Bankruptcy Code, educational loans are non-dischargeable in either Chapter 7 or Chapter 13 absent a court determination in an adversary proceeding. The fact that the loan was private or federally-subsidized is of very little consequence if any. The key inquiry is whether the loan was given for an educational purpose.
    Their is actually a couple off bills on the floor in capitol hill talking about allowing student loans to be able to be discharged. Will have to wait and see how they plays out.

  7. #7
    Join Date
    Oct 2011
    Posts
    3

    Default Re: Treatment of Private Education Loans in Bankruptcy

    jeff r,
    I actually just heard from a colleauge today about these bills and the possible changes regarding student loans and applicability of discharge for them. Do you know any details about these bills and when/if an outcome may be determined, or where I can find more information on this? I am very worried about my current situaion, especially considering that I am still in graduate school and have had to take out more student loans (all federal, no private loans). All are in deferment and/or good standing but the negative effects on my credit from undergrad private Key Bank loan is my biggest worry. I don't know what to expect or what steps I should take to begin?

  8. #8
    Join Date
    Apr 2009
    Location
    Somewhere near Canada
    Posts
    35,894

    Default Re: Treatment of Private Education Loans in Bankruptcy

    Quote Quoting kpowers27
    View Post
    jeff r,
    I actually just heard from a colleauge today about these bills and the possible changes regarding student loans and applicability of discharge for them. Do you know any details about these bills and when/if an outcome may be determined, or where I can find more information on this? I am very worried about my current situaion, especially considering that I am still in graduate school and have had to take out more student loans (all federal, no private loans). All are in deferment and/or good standing but the negative effects on my credit from undergrad private Key Bank loan is my biggest worry. I don't know what to expect or what steps I should take to begin?
    I'm not usually one to criticize, but given that a) it was the poster's first and only post; b) the poster attached a link to their own website and c) the grammar and spelling are both absolutely atrocious I'd probably be a little wary of taking advice from that poster.

    Now that's not to say that the information is inaccurate. But that's where tools such as Google come in handy. Research & verify, my friend.


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