I have a private Discover student loan (originally Citibank but bought, co-signed by my graduate school). I faithfully made my payments, on time, for years. I recently fell behind by only a few months - a grand total of $150 - during an unexpected unemployment / job transition. I'm now filing Chapter 7 to discharge my credit cards and be able to recover / save again, but Discover has sent me a letter now demanding that I pay my entire balance. I told them I cannot; they offered me a "settlement" I still can't afford. So I know what to expect:
Can they automatically sue me at this point? Do they have to turn it over to a collection agency first? Can I be sued and be required in court before I've filed Chapter 7 (I plan to file by the end of the month)? Can they move that fast?
Typically there is no obligation whatever to proceed through a collection agency rather than directly to court by an attorney. The student loan must be scheduled when you file for bankruptcy relief but likely will not to be discharged in bankruptcy. Speak to your bankruptcy lawyer about your particular facts and circumstances. In the meantime, take a look at the default, governing law, and notice provisions of your student loan note.
No company, person or entity that you owe money to has to first seek to collect its debt. Any one can go right to Court unless there is a contract clause that says otherwise.
1. They can sue you at this point, as long as the promissory note and any other documents you signed allow for that;
2. They don't have to turn it over to a collection agency;
3. They can sue you prior to filing the chapter 7;
4. Summons and complaints can be generated very quickly-collection law firms often use the same forms, often modified very inconsequentially for each case.
5. Depending on how you are sued, you will have either 20 to 30 days to answer.
6. The automatic stay of the Bankruptcy Code will stay such suit. The student loans will have to be listed in your bankruptcy even if they are not discharged.
7. Again, you should be represented by experienced and responsive bankruptcy counsel. Best of luck, Barbie D. Lieber
In many ways the debt collection process is entirely discretionary left up the the creditor to choose what it feels is the most effective means of collection. So long as the collector complies with the Fair Debt Collection Practices Act (FDCPA) and other applicable state and local laws, no set process is required. The FDCPA generally prohibits the use of false, misleading, deceptive, abusive and harassing debt collection tactics. I have written about the FDCPA here: http://nahoumlaw.com/fdcpa/
