In recent news, an appellate court allowed a lawsuit to proceed against a debt collection agency. The debt collection agency allegedly lied to the plaintiff and 181 other bankruptcy filers, sending each a collection letter stating that their student loans were not eligible for a bankruptcy discharge.
It is a common misconception that student loans are not able to be forgiven during a bankruptcy. This misconception most likely arises from the fact that it is difficult to get rid of student loan debt through bankruptcy. Though it is very difficult, it is not impossible. If a person filing for bankruptcy wants to discharge their student loan debt, they must prove to the judge that paying the loan would cause them “undue hardship.” To prove undue hardship, the debtor would need to show that they have made an effort to repay, that their financial hardship will continue, and that paying the loan would prevent them from keeping a minimum standard of living.
While there are 37 million people in the U.S. who borrowed federal student loans, fewer than 1,000 attempt to make a case to get rid of their student loans in a bankruptcy.
The lawsuit against the collection agency Collecto will continue in Federal District Court.
Bankruptcy collectors and debt collection agencies are notoriously deceptive and abusive. Often, debt collectors make life miserable for people struggling with debt by harassing them or their families or by lying to get them to pay. These tactics are against the law, and debt collection agencies that are caught could face penalties. If you are being harassed by a debt collection agency, you have legal options. Contact a bankruptcy attorney at Spalding & Spalding. We can help.
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