Q: I live in California and have a defaulted private student loan that has been bought by an attorney who now has filed a court judgment. I will appear in court to dispute but would like to know recommendations or what I can to do.
A: Since you have a court case pending, you should contact an attorney to discuss your situation. Speaking with a certified credit counselor may not be a bad idea either.
In either case, I will offer my opinion. Please just bear in mind that I am not an attorney, so the guidance I’m offering you is educational and for informational purposes, rather than legal advice.
Unfortunately, when you have private student loans you don’t have the same protections and recourse that is available to borrowers with federal student loans. The U.S. Department of Education afford federal borrowers protections such as the right to get forbearances and deferments during certain periods, including when you’re in school, out of work, or are facing serious financial difficulties.
Nevertheless, if you’re hauled into court over defaulted private student loans, there are still some strategies you can use to properly handle the situation.
First and foremost: do show up! I know you said that you plan to appear in court, so that’s a good initial step. Lots of people blow off court matters when facing overdue bills. They usually skip court either out of fear of legal or financial punishment, or out of ignorance of the law and their legal rights.
But missing court only makes things worse. If you don’t show up for the court hearing, a judge will in all likelihood grant the student loan servicer or owner of the debt an automatic judgment against you. (By the way, you said the attorney has “now filed a court judgment.” I assume you meant the attorney has simply filed a motion with the court seeking a judgment against you. An attorney can’t directly issue a judgment; only a judge can do that).
To deal with your defaulted student loans and this pending court appearance, you can take one of two approaches: the first is geared toward working out a deal and avoiding court; the latter strategy involves taking your case before a neutral third party (the judge).
If you try to negotiate directly with the attorney, expect him or her to start from the position that since you’ve defaulted, the entire loan balance is now due in full.
From your perspective, you want to start by explaining your current circumstances and advising the lawyer of your financial limitations. If you’re presently unemployed say so. If you’ve been sick or hospitalized and are grappling with big medical bills, advise the lender/attorney of that. If you’re working but your pay has been cut or your hours reduced, explain that as well.
In short, you should try to politely, but firmly, explain that you don’t have a ton of money at your disposal and you can’t possibly pay off the student loan balance in full. (I’m making this assumption solely on the basis that your loans are in default; that means you haven’t made the required payments due on them for at least several months. And if you didn’t pay those payments, you presumably don’t have a big chunk of cash sitting around somewhere to pay off the loan in full).
Next, you should try to work out a payment plan or at least propose some affordable monthly payment that would bring the loan out of default. You may have to make larger initial monthly payments as a show of good faith. So if you do have some “extra” cash anywhere, now is the time to put that money to work. If not, only agree to monthly payments that are truly feasible. When you make deals with creditors, they absolutely hate it when you break the terms of those re-structured deals. So do you best to only agree to a monthly payment plan that you can really manage.
As a final part of your direct-negotiation strategy, you should seek to have certain costs they’ve no doubt added – such as extra late fees and penalties – removed from your obligations. Often times, these additional charges can be very steep and cause your overall debt load to swell dramatically.
Advise the lawyer that you do recognize your obligation, but that you are facing a financial hardship that makes it difficult to pay more than you’ve offered.
If your negotiations fail, perhaps because the attorney takes a very hard-nosed approach, then resign yourself to going to court.
In court, your best option is to go before a judge and succinctly explain any and everything you can that would make the judge try to get the attorney to cut you a deal. Just as you shared the specifics of your financial hardship with the attorney, now is the time to share is with the judge. Only be prepared to back up what you’re claiming with documentation. For instance, if you’re out of work, bring your notice of termination, copy of your unemployment checks or proof that you’ve been job hunting.
Any family-based economic circumstances that you’ve encountered should also be detailed. For instance, if you’re taking care of ailing parents, are dealing with a chronically sick child, or if you have something else going on in your life that explains why you haven’t paid your loans, make sure the judge knows it. Again, bring written documents supporting these facts as well.
You should also have a very clear, clean itemized budget to present to the court. (Make multiples copies too: one for you, one for the court, and one for the attorney). List any and all income sources, along with all of your bills. And be prepared to answer questions about assets you own along with your other ongoing liabilities, such as credit card bills, mortgage debt, car notes and even payday loans. Who knows? Maybe you’re technically insolvent – even though you haven’t filed for bankruptcy. A judge may look at such factors and order the lender to accept drastically reduced payments.
Of course, you could have a very matter-of-fact, by-the-book type of judge who simply says: “You signed for the loan, you owe, and now you must pay.” If it goes that way, let the judge know that you aren’t trying to shirk your responsibilities, only trying to get more time or a reasonable, extended payment plan. Also, try to argue against a default judgment because that mars your credit rating, in addition to the damage that’s already been done by your defaulted student loan.
In the end, explaining your current circumstances and appearing sincere in your efforts to get a fair resolution will be your best approach – either one-on-one with the attorney or as you’re standing before a judge.