Lender taking me to court for college loan debt. What are my options?
Many college graduates leave college with as much as $40,000 of college loan debt. Add that to the fact that many are unable to find solid employment after graduation and America has a looming debt problem which could eventually be more serious than the housing crisis.
Recently on our legal forum a user asked, “I have been contacted by a private creditor for my college loan debt. They are threatening to file a lawsuit against me for non-repayment. I have been working two jobs but do not have enough to make the monthly loan payment. What are my options for repayment? Can they sue me? What will happen if I cannot repay the loan?”
Filing a lawsuit for private college loan debt
Students who negotiate a loan with a private creditor for college will be expected to meet the repayment terms of the loan contract. Private student loan debt (which includes loans not issued or guaranteed by the federal government) is similar to other types of unsecured debt, which means if you fail to repay the loan the private creditor must file a lawsuit against you and get the court to issue a judgment before they can garnish your wages or use other more aggressive debt collection actions.
The good news is the private lender has very little legal recourse for debt collection before getting the judgment. Unlike a car or house lender, there is no asset which collateralizes or secures the loan, which means they cannot come and repossess your education.
Fighting a lawsuit and having judgment issued, however, will allow the lender to begin certain collection actions against you. Actions which can include:
-Repossession of certain assets
-Potential wage garnishments
-Bank account levies
-Liens on real property
The type of actions allowed will depend on your state laws and the exemptions allowed in your state.
Note: The information above applies specifically to a private creditor. Creditors who have student loans guaranteed by the federal government do not have to get a state court judgment before attempting to garnish your wages.
How can I avoid a lawsuit for college loan debt?
The first step to avoid a lawsuit is to contact the lender. If you avoid their calls and refuse to communicate with them they may decide they have no option to file a lawsuit against you.
Next, you can determine if there is any valid reason for non-repayment. For example, you may be able to win your lawsuit if you can prove you do not owe the debt, the amount they claim they are owed is incorrect, the loan was fraudulently obtained, or the statute of limitations for debt collection has passed.
If the private creditor receives a judgment they most likely will begin creditor actions to collect the debt. In some cases, however, there may be little to collect. For instance, if you have no possessions, no savings, and no job, the creditor will have a judgment but may not be able to collect any money.
If you do not have the money, you have very few options for debt repayment. The private creditor will have the legal right to file a lawsuit against you, but if you have nothing to repossess or no wages to garnish, they will not get paid until there is something to collect.
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Joint bank accounts may not be protected from garnishment.