Make Debt Collectors Give You Money By Suing Them

This may not work for everyone, but it worked for Jeff. He tells Consumerist that after he filed Chapter 13 bankruptcy, Sallie Mae representatives continued to call him, which is sort of illegal. So his bankruptcy attorney sued them. And won a $4,000 settlement.

I have recently gone through Chapter 13 bankruptcy and had an experience that might enlighten others. After the filing, during the mandatory stay period, Sallie Mae continued to contact me about my student loan payment. I documented each call — time, number of origin, and person I talked to if I could get the information. I mentioned this to my bankruptcy attorney, who made effort to stop the calls. He finally filed an order that stopped the calls. He then asked me if I wanted to file a suit against Sallie Mae. I assented.

He filed suit for $14,000 – a grand per call. Within DAYS, the Sallie Mae attorney offered a $4,000 settlement. I had my money in hand several weeks after that. The whole process took about a month.

I don’t know if my case was unique, or if Sallie Mae illegally harasses everyone who files Chapter 13. Just wanted to let you know.

Debt collectors don’t have the right to harass you even if you haven’t declared bankruptcy. If you’re being hassled, learn what the limits are and how to make debt collectors stop.

Comments

Edit Your Comment

  1. ConsumerWolf says:

    So I can get an education, not pay for it, AND make money off the deal? Awesome.

    • Mackinstyle says:

      I think having filed for bankruptcy is pretty damaging to everything he’ll ever want to do. Getting a car, a house, etc. It’ll be tricky.

      The best solution is education reform. …one day. =)

      • ConsumerWolf says:

        I think the best solution is better education about paying for education. Also, we need to get away from this notion that 1) college is for everyone, and 2) a B.A. guarantees easy money.

        • thisistobehelpful says:

          We should also probably adopt the notion that those fit for college can afford to attend it without being shackled with outrageous debt.

          • ConsumerWolf says:

            It’s called going to a state school. It works out extremely well for a lot of people.

            • Seanumich says:

              I would suggest you look into what you think a STATE school costs. By your logic only the wealthy should have an opportunity to go to good schools, and the rest of the world should go to the cheapest place possible. Finally, a college education may not be for everyone, BUT those that do not go are going to be at an EXTREME disadvantage. High school isnt for everyone either; so when your kids want to drop out should they just be allowed to do so because they think it isnt for them

            • Kishi says:

              My state school is ~$4k a semester. That’s more than the amount I can hope for from government grants, so I’m going to have to be taking out loans anyway.

            • thisistobehelpful says:

              Why don’t you realize that not all state schools are cheap? Check out CT’s cost. My brother lives in Burlington VT, go look up the cost of UVM. I went to a state school the first time around but because it wasn’t MY state it was $22k a year so I only went 1.5 years.Not all states have affordable colleges and if you’re in one of those states and want to move to one where they do your cost is generally doubled because of residency and moving like that automatically means you’re paying for your child to live there.

              In fact just for fun, I looked up my first college, Colorado State University, $34k is now the estimated cost for a nonresident undergrad. That is over a $1,000 increase per year since I’ve gone. The instate cost of attendance for the college that is a state school and the next town over for me is $4,000+ a semester (not including books and lab fees). So for two semesters that would’ve been half my take home pay this year before my company went out of business. Yeah your solution is completely sound.

              Why not support a system that would educate your entire community instead of just those who can afford it? Oh wait, cuz it’s un-American to not step on everyone else to get ahead and if you keep a population stupid enough you can continue to control them.

              • ConsumerWolf says:

                A system that educates everyone? That’s what student loans are for.

                • sonneillon says:

                  And sometimes you spend a 130,000 dollars to learn how to make 28,000 a year. At that point the 500 or so dollars that would go to student loans is better spent elsewhere.

                  Sallie Mae broke the law they have to pay for it. The circumstances around it are irrelevant. They broke the law and they were penalized for it.

                  Jeff will still have to pay Sallie Mae because student loans do not get discharged. So it will follow him around till it gets repaid.

                  • ConsumerWolf says:

                    “And sometimes you spend a 130,000 dollars to learn how to make 28,000 a year. “

                    I’m sorry, but I thought higher education was about making yourself a better person. If that’s not what you’re looking for, go to a trade school and stay within your little world.

                    • thisistobehelpful says:

                      You’re not a fan of reality are you? If higher education were still about the education then employers wouldn’t be requiring it for the millions of jobs that take 1 month of training and someone who pays nominal attention. You should actually wake up and take a look around some job postings to see that nearly every position that doesn’t require a broom pretty much requires a bachelor’s. Maybe when you were just starting out there were more options but now even military training is slowly becoming not enough. The masters degree is up next for devaluation.

                • Seanumich says:

                  First, that is obviously not the case, since you are an uneducated idiot, and two, not every person can get a student loan. They are not automatic. maybe in your suburban middle class upbringing that works. If you want to talk about morality, how is it ok for the rest of the country to SUBSIDIZE and guarantee your student loan? You are a taker. You got yours and now you want to tell everybody else how they should live. Go back to your hole and die.

      • Me - now with more humidity says:

        Nah… you can get a decent mortgage in two years with a normal down payment, and a car loan at reasonable rates within a year if you know how to get your scores back up and prove your restored worthiness. It’s actually pretty easy.

    • ConsumerWolf says:

      Sorry, maybe that sounded a little bitchy, but as someone who is responsibly paying back their student loans, I get sick of hearing about how hard it is NOT paying back your student loans.

      • mythago says:

        The guy wasn’t complaining about NOT paying back his student loans; he was complaining that Sallie Mae was violating the law. So yes, more than a little bitchy.

      • Bohemian says:

        The problem is that there is not enough flexibility in the student loan system to accommodate people situations and have them making payments. The 3rd party collection system is beyond broken into the absurd and does more to degrade the situation than actually get money coming in for payments. There are solutions to this problem but it would cut into some private companies profits off a government contract.

      • TechnoDestructo says:

        Congratulations on being employed.

        • ConsumerWolf says:

          You’re obligated to pay your debts, whether you have a job or not.

          • Seanumich says:

            No, you are not obligated to pay your debts. The LAW is clear on this. We do not have debtors prison in this country. Debt collectors ARE obligated to follow the law, and since they broke the law, they should pay. If you decide to pay your bills, that is your choice, but nobody else is obligated to live by your set of standards

            • ConsumerWolf says:

              I’m talking about the moral and ethical obligation that we make when we enter into a contract. That actually means something to some people.

              • jnews says:

                It never seems to mean too much to the creditors who have no problem violating the law when it increases their profitability to cheat you…

              • strathmeyer says:

                Yes, and the results of not paying that debt are a part of that contract.

              • Seanumich says:

                So if KMart , GM, Chrysler, United Airlines, NWA, Delta, Delphi filed bankruptcy they were immoral? The first place your education has failed you is in thinking money and morality go together. All these companies signed contracts with lots of people, and when conditions changed they realized they could not live up to those contracts and used the bankruptcy laws to their advantage. If you want morality written into law, the Taliban wants you.

          • RogerTheAlien says:

            And lenders who practice predatory lending, and lend to people who shouldn’t be lent to, aren’t held to ANY standards whatsoever? Legally, morally, or otherwise? But borrowers are “obligated” to pay back their loans at all costs? So, what’s the weather like on Mars? And, how heavy is that rock you’re living under? And does it hurt to have your fingers in your ears all the time? Your arms must get tired.

            • ConsumerWolf says:

              You’re basically calling Jeff an idiot who was either too much of a moron to take the effort to understand what he was signing, or simply too dumb to understand it. I don’t think this is true.

              The idea that when we take out a loan, it’s completely up to us whether or not we want to pay it back is complete BS and you know it. The root issue is why this individual decided to not meet his obligations anymore. Was it irresponsible choices on his part, some kind of disaster, or both?

              • Rayon Fog says:

                How on earth do you know it was a “decision”?

                As many have said, God forbid you lose a job, become ill, get a divorce or have a business fail (while losing everything to make sure your employees are covered).

                The rest of us don’t live in vacuum. Circumstances change.

          • Inglix_the_Mad says:

            Actually there are specific circumstances which will cause them to be discharged. Many times they are simply restructured, and that is the law. Buck up for the suds.

          • kujospam says:

            and your also not supposed to speed. If you have sped once, I guess we should cut off your legs and arms so you don’t do it again. Personally I’m sick of everyone thinking they are better than everyone else. When we all know only I am. LOLs

          • mythago says:

            Google “chapter 13 bankruptcy” and see if that takes the edge off your bitchy.

      • RecordStoreToughGuy_RidesTheWarpOfSpaceIntoTheWombOfNight says:

        I hope you’re never hit by a medical emergency that would interfere with your ability to pay off your debts. Actually, it would be kinda nice to go through life completely oblivious to the fact that all it takes is one major illness or injury to seriously fuck up your finances.

        • vesper says:

          That is the number one reason that I vote for national health care no matter what version comes up. To think that in this country, you can lose everything you’ve ever worked for because of an illness is just asinine. I’d rather pay higher taxes up front than to lose all I have later in life. My ex is French and in that country and NO ONE loses ANYTHING when they get sick. Whether you’re 20, 30, 40, 50, or 60 years old, your life remains the same; you keep your belongings. When I discussed this with her family and friends, they were just blown away that we would end up completely broke and could end up on the street because of an illness. And what I also noticed in Europe is that those folks don’t seem anxious as we do and I believe that is one of the reasons. Having such a health care system helps a population to feel “secure” if that makes any sense. At least that is what I noticed.

      • Awesome McAwesomeness says:

        Again, loans aren’t dischargable in BK, and bankruptcy doesn’t=irresponsibility. There are many reasons people file. Those people still have to pay back their SL debt, period.

    • wcnghj says:

      Govt backed student loans are rarely discharged. Chapter 13 includes payback.

      Nothing wrong with BK and credit can be fixed within 2 years.

      • nucwin83 says:

        Seems a hell of a lot easier than just trying to come back from credit mistakes as a college student. I’m three years into fixing my mess and I still haven’t broken 700 on my FICO score. But I’d rather not have a BK on my record.

    • Crim Law Geek says:

      I could have sworn that Federally-backed student loans couldn’t be discharged in bankruptcy.

      • Dutchess says:

        I believe they can’t be discharged, but the law states they can’t continue to call durring the bankruptcy process.

        • humphrmi says:

          Right you are. Taxes are also not dis-chargeable, but the IRS will *not* contact you (if you’re in arrears with them) until your bankruptcy filing is discharged. Nobody may call to collect on a debt between the time you file and the discharge. Nobody, period.

    • Red_Flag says:

      So I can lend money to a student, violate the law in contacting him during a mandatory stay period during his bankruptcy proceedings (even though the student loans aren’t discharged by the stay), AND count on ConsumerWolf to back my illegal actions? Awesome.

      http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter13.html
      http://www.mdbankruptcylaw.com/lawguide/chapter13bankruptcy/automaticstay.asp

    • vesper says:

      He didn’t say that he was not going to pay his school loans back. Filing means that he cannot currently pay his debt back at this current time. And where do you work “Consumer Wolf”? Please let him and me in on the area in this country that has not been touched by double-digit unemployment so we can get a job there also.

    • Awesome McAwesomeness says:

      You still have to pay student loans off, they just aren’t allowed to call you while you work the details out. SL’s are not dischargeablle or reducable in BK.

  2. Mackinstyle says:

    Laura, we love you babydoll but please go spend Christmas off the Internet.

    As for me… nothing to see here, move along.

    • Laura Northrup says:

      As I said yesterday, “I usually spend the afternoon of Christmas goofing off on the Internet anyway, so I might as well put up some posts.”

  3. feralparakeet says:

    I find this kind of odd, because student loans aren’t covered by bankruptcy protection.

    Unless they were private student loans, which -might- be covered, but I don’t know for sure.

    • twophrasebark says:

      Yeah, a student loan can be discharged but only if the debtor can show extreme hardship. Which is almost never granted. As long as they are in your filing I don’t think any debtor can contact you during the stay period, even if the debt won’t be discharged. I’m not sure though – interesting question.

    • Laura Northrup says:

      No, it can’t be discharged, but they also can’t harass him with phone calls while he’s sorting out the bankruptcy.

  4. twophrasebark says:

    Jeff, I have a question. Wouldn’t that income belong to your creditors since the settlement occurred so close to your bankruptcy?

    Note: I am not making a sly attack on the OP. I helped a friend with his bankruptcy and am just curious. I seem to remember any substantial income so close to the filing date would lead to an amended filing? Maybe I am misremembering.

    Incidentally, my friend was repeatedly contacted by Advanta during his stay period. They were similarly clueless as to one of the most concrete rules about bankruptcy (not contacting you during the stay period). Bizarre.

    • Laura Northrup says:

      If it were me, I’d turn around and use it to pay off my debts. If the lawyer doesn’t recommend that, he should be fired.

      • humphrmi says:

        Actually, its technically not legal to pay off any debts while you’re “in bankruptcy” (essentially from the day you file with the courts to the day that you are discharged.) Paying a bill can essentially screw your bankruptcy – your filing can be dismissed rather than discharged and you end up owing everything, and the creditors can start calling again, pretty much immediately. You can pay monthly bills like utilities and rent, but not any debts that were included in your filing and not reaffirmed.

        However there is still a legal way to get around that – if you reaffirm the loan, you’re basically saying “I’ll pay this one.” The upshot is usually that if that loan is secured, you get to keep the security (e.g. car, etc.) But re-affs (as they are called) also have to go through somewhat of a legal process – attorneys on both sides have to approve the agreement, and the re-aff eventually has to be approved by the trustee.

      • drjeff says:

        We used it to pay back rent that we owed. One step at a time.

    • Me - now with more humidity says:

      No, it doesn’t belong to the creditors. The BK Trustee works with what is essentially a frozen snapshot of your financial life on the day you filed. If your tax refund came in a day or two before, it goes to the estate unless you spend it on essentials (which are clearly spelled out — watches and TVs aren’t, essential car repairs, tuition, and a big run to COSTCO are) before you filed. If you’re in the middle of suing someone, any proceeds from that go to the estate. If you’re doing a 13, the payment plan is based on your income as of the day you filed.

      But anything that you receive after the filing that wasn’t in the works before the filing is yours.

  5. Coles_Law says:

    From what I heard, it’s extremely difficult to discharge student loans in bankruptcy. I’ll bet Sallie Mae just assumed he hadn’t had them discharged and proceeded accordingly. Doesn’t make what they did any less illegal though.

  6. chopbrocoli says:

    I don’t get it… student loans are not dischargeable in Bankruptcy. Even private loans are treated the same way under the BK abuse prevention act. And suing collectors without merit is just asking for trouble and time.

  7. Skellbasher says:

    While the loans themselves may not be discharged, the stay period is intended to cease all collection activity. It’s basically a timeout so individual isn’t bombed with collection calls while the court is figuring everything out.

    The infractions by Sallie Mae here have nothing to do with the debts being discharged or not. It’s simply FDCPA violations.

  8. bitsnbytes says:

    At least it helps you pay your lawyer.

  9. Keliken says:

    Your defaulted loan was paid by the U.S Taxpayer to the institution you borrowed from. That is how a student loan backed by the government works. Maybe your dead beat ass should pay back the money you owe. People like you make me ashamed to be American. Why don’t you move to another country and see how they handle scumbags like yourself.

    • mythago says:

      Would that be a country where their citizens bother to know what the hell they’re talking about before throwing an ignorant tantrum about “the taxpayer”?

      Student loans are, except under very rare circumstances, NOT discharged in bankruptcy. The rest of the OP’s debts might be. Also, if you were from a country where Google is available, it would have taken you all of ten seconds to learn that a Chapter 13 bankruptcy is not a get-out-of-student-loans-free card. The issue here isn’t, if you RTFA, that the OP doesn’t want to or doesn’t have to pay his loans; the issue is that Sallie Mae should not have been calling him.

      Luckily, it takes a lot more than people like you to make me ashamed to be American.

    • twophrasebark says:

      “That is how a student loan backed by the government works.”

      Well, it works by guaranteeing that a corporation will get their loan money back. In other words, we guarantee healthy profits with no risk for the lender. It’s corporate welfare. We would be better off taking those hundreds of millions and simply giving more grants to students which is what we used to do before financial aid became primarily loans. And yet people would probably be up in arms at such an idea. Why I don’t know. We have been indoctrinated to think that corporate welfare will trickle down to the masses as opposed to the rather direct and demonstrably facile method of simply assisting people directly. When in fact most of the corporate welfare goes to a small elite of executives who are not even competent to run these companies.

    • wcnghj says:

      How can you say this when you don’t know the persons situation?

    • jamar0303 says:

      “Why don’t you move to another country and see how they handle scumbags like yourself.”

      I moved to China; 4 years at a big-name university here only runs me US$3750 a year. As an international student. The local students pay that much for all 4 years. Who needs student loans on a tuition THAT low?

    • dougp26364 says:

      I should hope that you never find yourself unemployed with significant debt hanging over your head, or perhaps divorced with an ex-spouse that does not pay their share of the combined debt or any other unfortunate situation which renders you unable to pay debts that formerly were within range of your ability to pay. Stuff happens and it’s not always because a person is a scumbag. Before you jump to conclusions, it might be best to know exactly where you’re jumping.

    • vesper says:

      Karma is a b!tch Keliken. Best hope it never happens to you.

    • drjeff says:

      Ooh, Santa didn’t bring someone what they wanted for Christmas!

      The loan is not defaulted. You can’t discharge student loan debt. It is part of the repayment plan. But, they’re not supposed to call during the stay period, and they did. Repeatedly. After several requests from my lawyer.

      Hope today is better for you.

    • shepd says:

      Maybe if he moved to another country, that country would understand how useful post-secondary education is and, *gasp* provide it gratis!

      That’s how it works in a surprisingly large amount of the first world.

  10. twophrasebark says:

    For those that attack people who file bankruptcy, consider that as a consumer, you don’t get your money back when you invest in a company that goes belly up. You take a risk and you are rewarded or punished.

    It’s the same for lenders. Do you think they should get take a risk on a consumer and be guaranteed to get their money back? Why? Are you guaranteed to get your money bank if you make a bad investment?

    Bankruptcy is a necessary component of a healthy economy. It allows companies and individuals to start over and contribute to the financial system. It is not designed to be a painless process – individuals are marked with bankruptcy for 10 years. In fact, a consumer’s punishment for filing bankruptcy is far greater than anything a corporation goes through where executives are generally not punished for poor management or investments.

    • thebt1 says:

      I totally agree. Bankruptcy isn’t usually a good thing, but if someone has so much debt they can never hope to pay it off, how does it benefit the economy to force them to pay it? There are some people who cause their own bankruptcy through taking out too many credit cards, etc, but many are there because of medical catastrophes or sometimes just bad luck. Dubai doesn’t allow bankruptcy, they just throw the debtors in prison, and that results in thousands of people skipping the country without paying anything back. A healthy economy requires the ability to let people start over fresh, within limits.

    • econobiker says:

      People like Trump use business bankruptcy as a strategy and tool. Sad but true.

  11. Esquire99 says:

    To clarify some misconceptions in the comments, student loan debt CAN be discharged in bankruptcy, but only upon a showing that continued repayment would be an extreme hardship. That’s a burden that is very difficult to satisfy which results in student loans very rarely being discharged.

  12. evilpete says:

    should have added they wave your dept as a part settlement

  13. dg says:

    Sears Roebuck engaged in a little scam where they’d call people who’d filed Bankruptcy, and even some people who had the bankruptcies discharged and said “Hey, we know you don’t HAVE to pay, but would you LIKE to do the right thing and pay?”

    Sleezy, and illegal. Sears got zapped by the government, fined a bunch, and just added to their list of FAIL that made me stop shopping there so many years ago…

    Anyone doesn’t follow the rules and you’ve been nice and asked? Sue ‘em.

  14. erratapage says:

    The OP did a Chapter 13 bankruptcy, which is a debt reorganization plan. While student loans cannot be discharged, they can be managed in a Chapter 13 plan. The OP is going to be paying back those student loans. He’s also entitled to the protection of the bankruptcy stay. So, back off the guy, okay?

  15. AngryK9 says:

    The Fed really needs to look into Sallie Mae’s collection practices. They once called my house 22 times in a single day over a loan that was just one month late.

  16. allstarecho says:

    So he won $4,000… of which $3950 of it went to the attorney for his fees. Lesson learned FTW!

  17. PresidentBeeblebrox says:

    In the right hands, few things can be as powerful as a FDCPA cease-and-desist letter, or a bankruptcy court order, in getting sleazy collection agencies off one’s back.

  18. maximus says:

    I’m sure the BK attorney took his lionshare cut out of the $4K.

  19. drjeff says:

    I’m the one referred to in the original post. I’d love to answer all the comments, but here’s the bulleted version.

    - I WILL be paying off the loans. Every penny, including interest that accrues over the next several years. Rest assured, all your fantasies about my deadbeat ways are not accurate.

    - The money I received went to pay rent. Eviction around the holidays is not the best thing ever.

    - Some of you folks need to go easy on the coffee. Or blood, or whatever it is that you’re drinking.

    - MY fantasy is that Sallie Mae will eventually learn that they’re not allowed to illegally harass people. I know, dream on, but here’s wishing.

    • Esquire99 says:

      I suspect will only be paying back Sallie Mae because you are being forced to, not because you feel it’s the “right thing to do.” If you could discharge them, you probably would. While there isn’t necessarily anything wrong with that (that’s another issue), it’s somewhat disingenuous to act like you will be paying the school loans back because you believe it’s the moral and just thing to do.

      • drjeff says:

        Where do you see me saying that I’m paying them because it’s moral and just? I just said that I will be paying them back. There’s no morality issue here. Legal, sure. Moral, no.

  20. mexifelio says:

    There, you go, stick it to the people that make it possible for other responsible people to go to school. Remember readers, we are only seeing 1/2 of the story here. Did the OP send a letter to Sallie Mae documenting their Chapter 13? Was he being counseled by his lawyer on things to do to continue to provoke SM to keep calling back to increase each call incident? I’m all for stopping people from being harassed, but I also know how very easy it is for someone to slander their concept of right and wrong in desperate situations.

    • Esquire99 says:

      You make good points; they won’t be well-taken here.

    • drjeff says:

      Man, I wish I was slick enough to somehow force people into doing illegal stuff so I could make a killing suing them. That would be fun.

      They engaged in illegal behavior. I answered the phone politely, gave them my case filing number, reminded them that they weren’t supposed to be calling me, and documented the call. Pretty sinister, huh?

  21. pot_roast says:

    Sometimes the problem is finding out exactly *who* to sue, since debt collectors often have multiple shell companies.

  22. mdovell says:

    Having worked in collections this is how things would normally go
    1) call person up…they say they are filing bankruptcy
    2) ok what’s your lawyers name and number? If they don’t have one then it is bs. If they do they must give the number
    3) call the lawyer up. ask if the debt is included with the bankruptcy. If not then calls can continue. If it is then the docket number and filing courthouse have to be given.
    I’ve heard from people claiming they were a lawyer but weren’t. One even worked as a clerk in a lawfirm and faxed over sheets claiming to be one (we almost sued him) The vast majority of lawyers are good in this though.

    Technically if the loans can be said to be a hardship they can be included in a bankrupcy
    http://bankruptcy.lawyers.com/Student-Loans-In-Bankruptcy.html

    If something is set to be paid (even say a few hundred a month) that might put things on the side for awhile.

    Also keep in mind there’s a difference between something being collected by an agency and the actual organization that has the origins in the debt.

  23. Demitri says:

    If you go into default a 10,000 loan mushrooms very quickly into a 100,000 debt…from fees and penalties. All this money goes to Sallie Mae, which is making a fortune over the misfortune of anyone who loses their job. The poor students are unable to now pay other debts, which is now wreaking havoc on the USA economy….

    The children of these students who are in default are now having to live in poverty because most of the family money is used to pay back defaulted student loans.

    Millions are now choosing to not go to college which has created a brain drain and all the technology is going places like Russia and China.

    Go to any University and you will find all the foreign student going to school for free paid for by the USA, (Graduate Stipens and work study) while American students get screwed with student loans.

    And…

    1. Places like Saudi Arabia, Kuwait, Oman offer free education to their students who study in the USA.

    2. American dollars went to fight for oil companies instead of giving the money to students.

    The Conservative Red Neck can now be thrilled as Many American Students graduate and then flee to another country and never pay back the student loan…