The Minnesota Debt Collection Lawsuit Guide: Part 3—After the Answer

Part 1—The Summons & Complaint
Part 2—The Answer

Now that you’ve served your answer to the collection lawsuit, you’re probably wondering what happens next. After all, the answer is only the beginning of the contested part of the case.

Here’s an overview of the remaining steps of the process.

Step 1 -- Initial disclosures and discovery plan

After the answer is served, the parties are required to confer about the case and develop a plan for discovery (Step 2, below). This conference, which can be by phone, is required to take place within 30 days of the original due date for the Answer. Most debt collection law firms will send a letter to set up the conference.

The parties are also required  to disclose all known witnesses and supporting documents, as well as to itemize the claimed damages and describe any insurance coverage for the claims, at this stage of the case. These are known as Rule 26 initial disclosures and must be sent to the other side within 60 days of the original due date for the Answer.

Step 2 -- Discovery

Once the discovery conference takes place , the next step in a debt collection lawsuit is discovery. If the case has not been filed with the court, there is no explicit time frame for discovery to happen and the parties are free to serve discovery whenever they wish. Once the case is filed with the court, the court will issue a deadline for discovery to be completed by.

Discovery is simply an opportunity for the parties to exchange information about the claims and defenses involved in a case. Discovery is not compulsory and a party is only required to provide information if they're properly asked. The most common forms of discovery in a debt collection case are Interrogatories, Request for Production of Documents, and Requests for Admission. Interrogatories are basically just questions that one party asks of the other. Requests for Production of Documents, as the name implies, requires that certain documents related to the case be produced. And Requests for Admission are essentially true or false questions about the claims or defenses in the case.

To request discovery, a party has to properly serve their Interrogatories, Requests for Production of Documents, or Requests for Admission. Written discovery is usually served by mailing the requests to the other side. The other party then has 30 days from the day the discovery was served to respond fully. Simply mailing a letter to the other side asking them to provide information about the case is not sufficient and doesn't trigger the other side's duty to respond.

Requests for Admission are probably the most critical part of discovery, because if they are not responded to within 30 days, they are considered admitted. Creditors write their Requests for Admission carefully so that if the consumer doesn't respond to them, they will end up admitting each element of the creditor's claims. I've seen cases where the only evidence that the creditor put in front of the judge was the consumer's failure to respond to the Requests for Admission.

Step 3 -- Filing the case with the court

In 2013, the court rules were changed to require that cases be filed with the court and brought under court supervision within one year from the date the Complaint was served. If the case isn't filed within the one-year time limit, it is automatically dismissed with prejudice and can't be re-started. The rules allow the parties to agree to extend this deadline, but there rarely is a reason for a defendant in a debt collection lawsuit to agree to extend this deadline.

To file the case, each party must file their initial pleading (ie. the Complaint or the Answer) and pay the court filing fee, which is about $300. The parties also have to file their discovery plan from Step 1 above. Once the case is filed, it will typically be assigned to a judge and the court will issue a schedule with deadlines for the case.

Step 4 -- Summary Judgment Motion

The next step in the majority of debt collection lawsuits is the creditor's summary judgment motion. This is a hearing in front of a judge where the creditor will offer all of its evidence and legal arguments and ask the judge to give them a judgment. Defending a summary judgment motion is a complicated process, but essentially it requires the consumer to file a brief with his legal arguments, any written testimony that he wishes the court to consider, and any documents that he wants the court to review. There is a hearing where the judge will ask questions of both sides. The judge then considers all of the arguments and evidence and decides whether the creditor is entitled to a judgment. If the judge rules in favor of the creditor, a judgment is entered and the case is over. If the judge rules against the creditor, then the case will proceed to trial.

Step 5 -- Mediation

In most cases, the court requires the parties to engage in mediation. Mediation involves a neutral third-party, sometimes a retired judge, that tries to help the parties resolve their differences and settle the case. The parties usually have to bear the cost of hiring a mediator, although more and more courts are offering low-cost mediation for qualifying cases and parties. The mediator can't require you to settle the case, but they can help you see the benefits of settlement and propose different settlement options.

Step 6 -- Pre-Trial and Trial

If you're fortunate enough to defeat the creditor's summary judgment motion and the parties don't settle at mediation, the next step in a debt collection lawsuit will be a trial. The judge will issue detailed instructions about the time leading up to trial. There are so many variables at this point that it's difficult to describe all the potential scenarios. If you get to this point, you would benefit greatly from discussing your case with an attorney. You have a great deal of leverage to get the case resolved if you defeat the summary judgment motion and an experienced consumer attorney can help you maximize that leverage to get the best possible outcome.

A final word -- the Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act is a federal law that regulates what debt collectors can and can't do when collecting debts. The FDCPA applies even if you owe the debt. If you're involved in a debt collection lawsuit, you should to educate yourself about the FDCPA. This post is a good place to start. Basically, a debt collector can't harass you, lie to you, or use any unfair collection tactics. If a debt collector violates the FDCPA, you can sue it for up to $1,000, plus any actual damages. The debt collector also has to pay your attorney fees and costs if you win your FDCPA case. A FDCPA claim can often be brought as a counterclaim in a debt collection lawsuit, which often will give you additional leverage to get the suit resolved.

Part 1—The Summons & Complaint
Part 2—The Answer

Ready to talk to a lawyer about your collection lawsuit?
Schedule a free consult with debt defense lawyer Todd Murray.

Since 2009, Todd has helped hundreds of Minnesotans defend debt collection lawsuits. His work has saved his clients millions of dollars (and many sleepless nights). Todd’s clients have described him as “very professional and easy to work with.” He lives in Minneapolis with his wife and four children.

Learned your odometer was rolled back? Everything you need to know.

According to the National Highway Traffic Safety Administration, over 450,000 vehicles are sold every year with false odometer readings. The NHTSA says this rampant fraud costs car buyers over $1 billion dollars annually. If you just learned that you are one of these unlucky car buyers, here is everything you need to know.

How does someone roll back an odometer?

Scammers use digital equipment that plugs right into a vehicle’s internal computer system to alter the mileage. Indeed, a quick search for “odometer rollback tool” returns a bunch of “mileage correction” devices:

Why do scammers tamper with odometers?

Easy. Rolling back the odometer allows a heavily-worn car to be sold for a newer-car price. For example, a 2013 Toyota Camry might sell for about $10,000 with 100,000 miles on it. With 200,000 miles on it, though, it sells for only $7,300. An unscrupulous car dealer might see that $2,700 as easy money.

i think my car’s odometer was rolled back. How do I know for sure?

Here are a few tips for finding a rolled-back odometer, either before or after the sale.

• Get a vehicle history report from Carfax. These reports have alerts if there’s an odometer discrepancy in the vehicle’s history.

• Check the vehicle for past maintenance records. Oil change and other maintenance records always show the mileage at the time the vehicle was in the shop. Be sure to look in the glovebox and under the seats for left-behind records. You should also check the windshield and door frame for past maintenance stickers.

• Request a title history from the Department of Motor vehicles. Depending on how far the title history goes back, it may reveal odometer discrepancies.

• Inspect the wear and tear on the vehicle. Take the car to mechanic to see if they can find evidence that the car is more “used” than it appears.

WHY SHOULD I CARE IF MY vehicle’S ODOMETER was altered?

Two reasons.

First, you overpaid for the vehicle. Probably by a lot.

Second, you’ll never be able to trade the vehicle in. One of the first things a dealer does when evaluating a trade-in is pull a CarFax report. If the report shows an odometer discrepancy, the dealer is sure to pass on your trade.

Similarly, if you try to sell the vehicle to a private party, you’ll have to disclose the odometer discrepancy. No car buyer in his right mind is going to buy a vehicle with a rolled back odometer.

tampering with an odometer has to be illegal, right?

Definitely. Both federal and Minnesota law prohibit odometer tampering. The law also prohibits sellers from knowingly making a false odometer disclosure even if they weren’t the one who rolled back the odometer.

If my vehicle’s odometer was rolled back, what are my legal rights?

If you’ve been victimized by odometer fraud, the law allows you to sue the perpetrator. If you win the case, the court must award you $10,000 or three times your actual damages, whichever is greater. Further, the defendant has to pay for your attorney fees and court costs.

In addition to these civil penalties, the law provides for criminal penalties for odometer fraud.

Just learned your vehicle’s odometer was rolled back?
Get a free consult with auto fraud attorney Todd Murray.

Since 2009, Todd has been helping Minnesotans combat fraudulent auto sales by used car dealers. His work has returned hundreds of thousands of dollars to his clients’ pockets and has improved the legal protections for used car buyers throughout the state. Todd’s clients have described him as “very professional and easy to work with.” He lives in Minneapolis with his wife and four children.

How to respond to a debt collector's requests for admission

A favorite litigation tactic used by collection lawyers in a debt collection lawsuit is to serve an unsuspecting consumer with requests for admission. These are typically a series of statements that you are asked to admit or deny. In other forms of litigation, requests for admission are typically used to figure out what facts are disputed in the case. But debt collectors don't use requests for admission to learn more about what facts you dispute. In fact, they couldn’t care less about your answers and would prefer that you didn't answer them at all.

Why? Because if you don't answer the requests for admission within 30 days, every statement in them is then considered to be true. So debt collectors structure them in a way that if you don't answer, you've admitted each element of their case. And debt collectors are well-aware that the majority of people won’t answer the admissions because they don't understand the serious consequences of not doing so.

This is just another example of debt collectors using a court rule for something other than its intended purpose. I've seen debt collectors ask judges to rule in their favor based only on the consumer's failure to respond to the requests for admission. They didn't produce any billing statements, applications, terms and conditions—any evidence. And though I suspect that most judges know exactly what the debt collector is up to, their hands are tied by the court rules.

So the lesson here is to respond to every request for admission within 30 days. You only have to admit the statement if you know for a fact that it’s true. For example, if the statement asks you to admit having a credit card with a specific 16-digit account number, unless you know for sure that is your account number, you can probably deny the request. Of course, if you have copies of your billing statements with that account number on them, you'll probably have to admit that request.

Stop foreclosure now

Bankruptcy is the only way to guarantee a foreclosure is stopped immediately. All the other ways of stopping foreclosure (asking for a modification, filing a postponement with the county, etc.) don’t stop foreclosure immediately either because they take time or they rely on the lender to take action. Bankruptcy is a powerful tool because it puts things into your hands and allows you to act right away.

How to stop foreclosure immediately

Filing a Chapter 7 or a Chapter 13 bankruptcy stops foreclosure right away. Any foreclosure sale that is scheduled is not only immediately canceled as of the moment a bankruptcy petition is filed, but if the sale happens regardless of the bankruptcy, the lender is required to undo it right away.

When do you need to file bankruptcy to stop a foreclosure sale?

A foreclosure sale can be stopped as long as the bankruptcy was filed immediately before the sale took place. This means that if the sale was scheduled for 10 a.m. on a Friday, filing a bankruptcy case at 9:59 stops the foreclosure. Once the sale occurs, a later bankruptcy will no longer stop that foreclosure—there may still be reasons to file, but a mortgage cannot be brought back into good standing (without paying it off in full) once the sale happens.

How much lead time does my lawyer need to prepare my case?

We have filed bankruptcy the same day the borrower got in touch. The more lead time we have, the better, but we’re often your best option if you’re down to the wire.

What do I need to gather before I stop my foreclosure?

To stop an emergency foreclosure, we’ll need a couple of things. First, your pre-filing bankruptcy fee will need to be paid in full ($2,250-$4000, depending on the case) and in certified funds (cash, cashier’s check, money order). You’ll also need to file an online credit counseling class (this is mandatory before we file an emergency case). Other than that, what you’ll need varies case-by-case, and we can let you know when we talk.

What you need to know about the collection of old debts

If you're facing debt collection on an account that is more than a couple of years old, the first thing you should do is figure out how long the statute of limitations is. The statute of limitations is the amount of time set by law for a creditor to start a lawsuit against you. In Minnesota, for example, the statute of limitations for most debt collection lawsuits is six years. This means that the lawsuit only has to be started within six years. It doesn't mean that the lawsuit has to be finished within six years.

Once you know what the statute of limitations is, you need to determine when it starts to run in your case. Generally, the statute of limitations begins to run on the first day that you are in default on your account. A quick way to figure out when your account went into default is to determine the date that you made your last regular payment. Although this won't always be a precise date that the statute of limitations began to run, it's a good estimate.

When you know the applicable statute of limitations and the date it started in your case, the rest is just simple math. Using Minnesota's six-year statute of limitations as an example again, if you defaulted on your account on December 15, 2014, the creditor must start the lawsuit against you no later than December 15, 2020.

If the creditor doesn't start the collection lawsuit within the statute of limitations, it loses its ability to use the judicial process to collect the debt. This doesn't necessarily mean that the creditor can't call or write you to collect the debt. In Minnesota, a debt collector may collect a debt that is past the statute of limitations. But it can't threaten to sue you or sue you for an old debt that is past the statute of limitations. And if the debt is more than seven years old, it can't be reported to the credit bureaus.

If the debt collector brings a lawsuit on a debt that is past the statute of limitations, you have an absolute defense to the collection lawsuit. You need to raise this defense in your answer or it may be waived. Also, it's your burden to prove that the statute of limitations is up and you may need to gather some evidence first. But this is a powerful defense that, if proven, will result in the debt collector's case being thrown out.

In addition, many courts have held that a debt collector violates the FDCPA when it threatens to bring or brings a lawsuit for an old debt that is past the statute of limitations. When a debt collector violates the FDCPA, you have the right to sue them and the law provides that the collector has to pay you up to $1,000, plus any provable actual damages--such as emotional distress. Further, the debt collector has to pay your attorney fees and costs. So if everything goes your way, you could get the debt wiped out and get some money back from the debt collector.

A quick summary of the law on the collection of old debt

(1) In Minnesota, a debt collector can attempt to collect a debt past the statute of limitations through phone calls, letters, or similar methods. This rule may be different in other states.

(2) A debt collector in Minnesota cannot, however, threaten to sue you or sue you for a debt that is past the statute of limitations. This is also true in most other states.

(3) A debt collector cannot put a debt that is more than seven years old on your credit report. This is true everywhere. I would also take the position that a debt collector cannot even threaten to report a debt that is past the statute of limitations.

How to answer interrogatories in a debt collection lawsuit

In the past, I've written about the importance of answering a debt collection lawsuit. But answering the lawsuit is only the first step. After the debt collector receives your answer, they'll usually send you written discovery. The discovery will probably have interrogatories, requests for production of documents, and requests for admission. In Minnesota, it's critical that you respond to each of these things within 30 days of receiving them.

This post focuses on how to respond to interrogatories. Interrogatories are simply just questions about the case. Debt collectors are allowed to ask about anything that is relevant to their claims or your defenses. Do your best to answer each question. If you don't understand what the interrogatory is asking, then you may answer that you object to the interrogatory as vague or ambiguous. Your answers to each interrogatory are due within 30 days. Unlike requests for admission, it's not fatal to your case if you don't answer within this time. But you should make every effort to answer within 30 days and you should never just ignore the interrogatories.

A final word of caution: there are many forms available online that seemingly can be used to answer debt collection discovery. But before you just copy and paste from the internet, make sure you understand what the form answers mean and whether they apply to the discovery requests for your case. And be careful with objections. Unless you understand what an objection means and are relatively sure it applies to the question you've been asked, it's probably best to just answer the question.

What is a summary judgment motion?

A summary judgment is a final decision by the court without having a trial. Debt collection lawsuits rarely go to trial and most are decided on a motion for summary judgment. The purpose of a trial is to resolve the facts that are disputed. In other words, the jury listens to all the witnesses’ testimony, reviews any exhibits, and decides whose story is more believable. When someone brings a summary judgment motion, they're arguing that all the important facts are undisputed, so there's no need for a jury to hear testimony and that the judge should just apply the law and make a decision. In debt collection cases, the creditor usually brings the summary judgment motion.

So what should you do if the debt collection lawyer brings a summary judgment motion in your case? First, you need to figure out if there are any facts that are disputed. If there are, the judge should deny the summary judgment motion and schedule the case for trial to resolve those disputed facts. If you come up with some, you'll need to put them in your response to the creditor's motion. In Minnesota, a response to a summary judgment motion must be filed with the court—and sent to the creditor's attorney—at least 14 days before the hearing. If you don't file a written response, you'll probably lose the case and the judge might not allow you to make any oral arguments at the hearing.

A summary judgment motion is probably the most difficult phase of a debt collection lawsuit for a non-lawyer to handle. You should strongly consider talking to a lawyer with experience defending debt collection lawsuits.

COVID-19 means a twelve-month break on mortgage payments for some borrowers

One of the most important provisions for consumers in the federal CARES act is the right to a twelve-month forbearance (a break) on mortgage payments for any borrower with a loan owned or insured by certain government entities. This can be a huge help to borrowers who are in financial difficulty right now, but also comes with some risks.

What loans qualify for the program?

The law applies to any loans owned by Fannie Mae and Freddie Mac, insured by HUD, the VA, or the USDA, or directly made by the USDA. According to the CFPB, nearly half of all U.S. home mortgages are owned or backed by Fannie Mae or Freddie Mac. Some borrowers can look up their loans at this link, to see if you qualify.

If your mortgage does not qualify for this program, your individual servicer may have its own forbearance program, just call to find out.

How do I get a break on my payments?

Typically you can call your servicer to request the forbearance. They have to offer it to all qualifying borrowers any obstacles, including no fees, charges or additional interest. The forbearance also may not result in any negative credit reporting. Note, the payments are not forgiven, they need to be repaid after the end of the forbearance through a few different payment options. You should ask your lender, before you take the forbearance, how missed payments will be handled.

How do I repay my mortgage payments once the forbearance is over?

This is one of the biggest unanswered questions about this program, and a potential real danger for people who participate in it. And many borrowers have not been able to get their lenders to commit to what will happen until the payments actually come due. There are a few different possible payback options:

• Lump-sum payback at the end of the forbearance: This is the scariest option for most borrowers—that they’ll be required to pay the missed payments back in full, all at one time. This is likely to be impossible for most people.

• Short-term mortgage modification: This option, first of all, assumes that the economy will be back to normal after 12 months, but also requires that borrowers stretch to pay the missed payments back over a few months to a couple of years. This option is likely to result in many foreclosures in the coming year.

• Long-term mortgage modification: Allowing borrowers to spread their missed mortgage payments out over the remaining term of the mortgage will help keep more people out of foreclosure. For example, for a borrower with a $1,500 mortgage payments and 20 years remaining on their mortgage, a one-year forbearance will increase their monthly payment by $75 per month for the remainder of the loan.

• Tacking payments onto the end of the mortgage: Another good option that will keep people out of foreclosure is to take the missed payments and add them to the end of the mortgage, extending the length of the mortgage loan up to 12 months. This options should help people get through the hard times without attaching a ticking time bomb to the end of the 12-month forbearance.

What if I need help when my mortgage forbearance is over?

There may be a couple of ways to get help if your mortgage company is asking for an unreasonable increase in your payments at the end of a forbearance. One would be to apply for a loan modification with the services. Another would be to file Chapter 13 bankruptcy, to spread the missed mortgage payments out over five years and allow you to pay it back a little at a time.

This is all new territory for everyone, so please let us know if you have any issues and we can help.

Bankruptcy discharge: private student loans can be wiped out in some cases

Many people are under the incorrect belief that student loans can’t be wiped out in bankruptcy. However, there are at least two ways to get rid of student loans in a bankruptcy case.

The first is to show the court that the loan would cause “undue hardship” and so based on that borrower’s specific situation, the loan should be wiped out. We discuss that in another article. The second is to prove that a particular loan does not meet the legal definition of “educational loan” under the Bankruptcy Code and therefore is just an ordinary loan that can be wiped out in bankruptcy.

There are two “exceptions to discharge” that may prevent student loans from being wiped out in bankruptcy.

1. An educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

2. Any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual

Governmental unit or nonprofit institution

This exception covers federal and state loans. It also covers loans “made under any program funded in whole or in part by a nonprofit institution.” This sentence in the bankruptcy law caused a whole bunch of student lenders to use nonprofits just for the purpose of funding/guaranteeing their loans. In the paperwork, you may see the name of a nonprofit like The Education Resources Institute (TERI). We believe that many of these loans were not meaningfully funded by nonprofits, but instead the lender “rented” the nonprofit’s name just to avoid the loans being dischargeable in bankruptcy. This is one factor we’ll look at if we represent you in your student loan bankruptcy case.

Qualified education loan

A qualified education loan is a very complex definition that requires looking at a handful of different federal laws, but basically the loan had to be made to an eligible student (half-time or more), at an accredited school, and the loan may not have been for more than the cost of attendance at the school, and solely for educational expenses.

How to make your case

Although the two definitions above make the majority of student loans non-dischargeable in bankruptcy, we believe that a lot of loans don’t meet either definition. You can make your case either by filing an “adversary proceeding” in your bankruptcy case, or by using these arguments as a defense to a student loan collection lawsuit after you have filed bankruptcy. We are one of the only law firms in Minnesota that handles student loan discharge cases, and our prices begin at $5,000. Get in touch if you have questions.

Bankruptcy discharge: student loans can be wiped out if there is "undue hardship"

Many people are under the incorrect belief that student loans can’t be wiped out in bankruptcy. However, there are at least two ways to get rid of student loans in a bankruptcy case.

The first is to show the court that a particular loan does not meet the legal definition of “educational loan” under the Bankruptcy Code. We discuss that in another article. The second one is to show that the loan would cause “undue hardship” and so based on that borrower’s specific situation, the loan should be wiped out.

In Minnesota, courts look at three factors to figure out whether a loan causes undue hardship.

1. The borrower’s past, present and reasonably reliable income and assets;

2. A calculation of the borrower’s reasonable necessary living expenses for their family; and

3. Any other relevant facts and circumstances.

This test is applied case-by-case and really depends on how well a borrower can paint the financial picture both that they can’t afford to pay their loans now, and also convince the court they will not be able to pay in the future. It’s helpful to be able to prove some kind of disability or condition that makes it harder to work or makes the stress of student loans too much to bear.

It’s much easier to wipe out private loans than federal loans using the bankruptcy process. Discharging student loans requires that you file bankruptcy first, and then file a separate case, called an adversary proceeding, against the student lender. Typical fees in a student loan discharge case are between $7,500 and $15,000, but they vary case-by-case.

We’re one of the only law firms in Minnesota who handle student loan discharge cases. Get in touch for a free consultation to figure out whether you’ll qualify.

What you need to know about student loan garnishment and tax refund offset

If you default on a federal student loan, the Department of Education has the power to garnish your wages and use your tax refund as an offset. These extremely unpleasant things all happen outside the court process and there is no statute of limitations. In fact, these collection powers are so powerful, that the Department rarely brings collection lawsuits against borrowers anymore. If you are dealing with student loan garnishment or offset, here’s what you need to know.

Wage Garnishment

The majority of federal student loan garnishments are done by the Department of Education itself. Under federal law, the Department may seize up to 15% of your disposable pay from each paycheck. This is typically the amount of your wages remaining after deducting taxes and health insurance.

The wage garnishment process happens administratively—they don’t have to sue you first and there is no court oversight of the process. They do, however, have to notify you in writing of their intent to garnish. This letter must list the nature and amount of the debt and give you a summary of your rights.

Borrowers have 15 days from the date that the intent to garnish notice was mailed to request a hearing. Borrowers can request a hearing after that date, but the garnishment will proceed while the hearing is still pending. Although borrowers have a right to an oral hearing, most hearings are conducted merely through the submission of the relevant paperwork. A decision must be issued within 60 days.

During the hearing, borrowers may object to the garnishment for a couple of reasons, including: (1) disputing the existence of the debt; (2) challenging the enforceability of the debt because it was based on forgery, or was discharged in bankruptcy or on statutory grounds; and (3) seeking to reduce the amount of the garnishment based on financial hardship. The borrower may also raise their eligibility for non-bankruptcy discharges, such as total and permanent disability or school closing during this process. There is a strict process to follow and forms that must be used to raise these issues and request a hearing.

Borrowers may also stop a garnishment by exercise their rights to rehabilitate or consolidate their defaulted loans. If all else fails, filing bankruptcy to stop the garnishment is an option.

Tax refund offset

The Department may also seize your tax refunds to offset the amount you owe on a defaulted federal student loan. They have to notify you in writing of their intent to seize your tax refund and provide you with a summary of your rights.

The defenses to a tax refund offset include: (1) disputing the existence of the debt; (2) challenging the enforceability of the debt because it was based on forgery, or was discharged in bankruptcy or on statutory grounds; and (3) the borrower is current on a repayment plan for the loan. In general, hardship is not a defense to a tax refund offset.

Borrowers may also prevent a tax refund offset by entering into an agreeable repayment arrangement or by exercising their rights to rehabilitate or consolidate their defaulted loans, though there are strict timelines that must be followed to prevent the tax refund seizure. As a practical matter, it is nearly impossible to get a tax refund back after it’s been seized.

Finally, filing bankruptcy will stop the tax refund offset.

How to deal with federal student loans

As total student loan debt in the United States approaches $1 trillion, many borrowers are going into default. On federal student loans alone, the number of people who went into default during the first three years after graduation was a staggering 13.4 percent. There are a few things borrowers can do to deal with runaway student loans.

If the federal student loan is not in default

If a federal student loan is not in default, there are numerous repayment options available, including a number of income-driven payment options. Each of these programs allow a borrower to pay a percentage of his income to his loans (sometimes as low as zero percent) and the remaining debt is forgiven after a number of years (20-25). The government has a web site that allows you to explore these options.

If the federal student loan is in default

Once default occurs, income-driven repayment plans aren't available anymore and the student lender will tack on a 25 percent collection fee to the balance. The lender can then garnish wages and seize tax returns. If a loan is in default, you have two options: rehabilitation or consolidation.

Rehabilitation

In our experience, rehab is the best option for most borrowers. To rehabilitate your federal loans, you must make nine consecutive reasonable and affordable payments. The payment amounts are determined by your disposable income and can be as low as $5 per month. To start the rehab process, contact your loan servicer and request info on rehab. The servicer is required by law to give you this information. You will likely have to submit some form of income verification.

Once you’ve made the required payments, your loan will be taken out of default status and income-based repayment options are available again. The default status will be removed from your credit report, although past late payments can still be reported.

You can begin the rehab process even if your wages are being garnished or tax refunds are being seized, though the garnishment or seizure probably won’t stop until you’ve made all the rehab payments.

It’s also important to understand that you can only rehab a defaulted loan one time. So it’s critical to transition to an income-driven repayment option once you’ve completed the rehab so you don’t default again.

Consolidation

Consolidation is the process of paying off your defaulted federal student loans with a new loan. Consolidation may be an attractive option for a person who can’t wait nine months to get out of default. Typically, this is someone who wants to go back to school right away and needs immediate access to additional federal student aid that isn’t available when loans are in default. Most, but not all, federal loans are eligible for consolidation.

Before you can consolidate your loans you must either: (1) make three consecutive fully monthly payments; or (2) agree to pay off the new consolidated loan through an income-driven repayment plan.

You can begin the consolidation process by requesting info from your servicer or apply for a consolidation loan directly through the federal government. Consolidation isn’t available if your wages are being garnished, unless you can get the garnishment order lifted.

After consolidation, past late payments and past default status will remain on your credit report.

Finally, consolidation is generally only available one time—you typically cannot consolidate a loan that has already been consolidated.

Discharging federal student loans outside bankruptcy

A federal loan can be administratively discharged by the U.S. Government for a few reasons. These include things like the borrower becomes totally disabled or the school closes while the borrower is attending. More information about these options is available on the federal student loan website.

Discharging federal student loans in bankruptcy

Contrary to popular belief, student loans can be discharged in bankruptcy, but it's not always easy. A student loan can be discharged if paying it would cause "undue hardship" to the borrower. It's not totally clear what this means, since different courts have interpreted this in different ways, but it's definitely something more than just not being able to afford to pay off loan on a borrower's current income. A borrower generally has to show that she will never be able to pay off the loan to have it wiped out in bankruptcy.

Payment plans in Chapter 13 bankruptcy

One last option for borrowers struggling to pay private loans is Chapter 13 bankruptcy. In Chapter 13, a borrower can force the lender to enter a repayment plan over a five-year period.  This can be necessary where a borrower is being sued and the lender is demanding the full amount to be paid at once "or else." The downside to this approach is that if the court-ordered payments are low enough, interest will accumulate faster than it's paid off and the borrower will owe more at the end of the five years.

How to deal with private student loans

Unlike federal student loans, borrowers have few good options for dealing with unmanageable private student loan payments. If your private loan has gone into default, here’s what you need to know.

your options for defaulted private loans

You basically have three options for dealing with a private student loan in default: (1) negotiate a settlement or payment plan with the debt collector; (2) wait to be sued and defend yourself in court; (3) try to wipe out the private loans in bankruptcy.

Negotiation

Private student loan borrowers do not have the protection of federal income-based repayment options. You’ll have to work with the debt collector and try to agree on a reasonable settlement or payment plan you can afford.

Defend yourself in court

If the debt collector won’t be reasonable about settlement, another option is to wait to be sued and defend yourself in court. There are a variety of defenses available in a private student loan lawsuit. While the best case scenario would be getting the case thrown out, in most cases pushing back in court will soften the collector’s bargaining position and get you a more reasonable settlement.

Discharge in bankruptcy

It is difficult, but not impossible, to wipe out private student loans in bankruptcy. You should consult with a bankruptcy lawyer experienced in dealing with student loan issues to see if discharge might be a viable option for you.

Your rights when dealing with private loan debt collectors

Knowledge is power and you should educate yourself on your rights when dealing with private student loan debt collectors. The Fair Debt Collection Practices Act forbids collectors from using misleading, abusive, or harassing collection tactics. You can sue a debt collector who breaks the law even if you owe the debt and there are many benefits to holding a debt collector accountable.

Common FDCPA violations in student loan collections include misleading threats about garnishment and lying to you about wiping out your student loans in bankruptcy.

How to defend a private student loan lawsuit

Procedurally, there aren’t any differences between a private student loan lawsuit and any other debt collection lawsuit. The lawsuit begins with the service of a summons and complaint. Even if the summons doesn’t have a court file number, you must still answer it within 20 days. Your answer must respond to all of the allegations in the complaint and should identify your defenses.

The defenses in a collection lawsuit, however, are somewhat different than those typically asserted in, say, a credit card collection lawsuit. Here is a list of some of the more common defenses in a private student loan lawsuit.

statute of limitations

The statute of limitations in a private student loan lawsuit in Minnesota is generally six years from the date you defaulted on the student loan. Be careful, though, because this analysis can be complex. You need to look at the default triggers in your loan agreement and think carefully about when you first went into default. Depending on your agreement, it may not have been when you first missed a payment. Next, you need to figure out whether Minnesota’s six year statute of limitations period is applicable, or whether another state’s shorter statute of limitations period applies. Then you need to calculate the time between your default and the end of the applicable time limit to determine whether the lawsuit was started in time.

If you can show that your lawsuit was beyond the statute of limitations, a Court should throw it out.

illegal interest rate

Watch out, this one is tricky too. Most states limit how high an interest rate can be charged for certain loans. But there is also a federal law, the National Bank Act, that may allow some lenders to avoid state law interest rate caps. To figure out whether the interest rate on your loan is too high involves a complicated analysis of who your lender is, where they are located, and what interest rate law applies. This is even more difficult because many student loans have variable interest rates that change over time.

If you can show that the interest rate charged was illegal, you should be able to reduce the amount owed. In some cases, you may be able to eliminate the student loan debt entirely.

discharge in bankruptcy

If you filed bankruptcy after taking out the student loans, you may be able to show that the loans were wiped out in your bankruptcy. This, too, is a complicated analysis that involves looking at who made your loan, where you went to school, what you went to school for, whether you used the student loan proceeds for anything other than education, and a bunch of other factors.

But if you can show that your loan was not the type that is automatically discharged in your bankruptcy, you might be able to get a court to throw out the lawsuit.

insufficient evidence

Many private student loans are being acquired by debt buyers. Because they didn’t originate the loan, debt buyers may not have sufficient evidence to prove that they own the debt or the amount owed.

Contract formation issues

If you never agreed to the loan and signed the paperwork, the loan contract shouldn’t be binding. We’ve seen several cases where the primary borrower forged a co-signor’s signature, so if you don’t recognize a loan, you should ask some questions before you concede owing it.

Differences between federal and private student loans

Probably the first step in figuring out your options for dealing with student loans is to determine whether your loans are federal loans or private loans. Here are the key features of each:

FEDERAL STUDENT LOANS

Federal student loans are made or guaranteed by the Department of Education. The most common federal student loan types are Stafford, Direct Loan, PLUS, and Perkins loans. Borrowers can use the National Student Loan Data System to figure out what type of federal loans they have.

Federal student loans generally have lower interest rates and the law gives borrowers many more options for dealing with them if the payments become too burdensome. However, there are very few defenses available if the government begins legal action after default.

Federal student loans are difficult, though not impossible, to wipe out in bankruptcy.

PRIVATE STUDENT LOANS

Private student loans are typically made by banks, credit unions, state agencies, or schools themselves. They may have names like “alternative” or “institutional” loans.

Private student loans typically have higher interest rates than federal loans and the borrower’s credit history will often determine the precise terms. And unlike federal loans, borrowers have very few options if they fall behind on payments. On the bright side, borrowers may have more defenses available if a private student loan lender begins legal proceedings.

Although still challenging to discharge in bankruptcy, private student loans may be a little easier to wipe out than federal loans.

How to know if your student loan is in "default"

A federal student loan is in default if you have gone more than 270 days (9 months) without making a required payment. Once a federal loan is in default, a 25% collection fee will be added to the balance and the government may seek to garnish your wages or seize your federal tax refund.

Private student loan default is governed by the loan agreement and may begin after just one missed payment. Private loan contracts also typically provide for default if the borrower: (1) breaks any promise in the loan agreement; (2) files bankruptcy; or (3) makes a false statement in the loan application.

Once a private loan is in default, the loan may be referred to a debt collector or the borrower may get sued by a collection law firm.

Common FDCPA violations in student loan collections

The total amount of federal student loan debt in the U.S. is about one trillion dollars. When a borrower falls behind on payments, the student loan collections process begins. Although federal student loan collectors have impressive collection powers, it's important for consumers to recognize that the Fair Debt Collection Practices Act still prevents a debt collector from making false or misleading statements or otherwise harassing or abusing a consumer. Here are some of the most frequent FDCPA violations in student loan collections:

Misleading threats to garnish wages

Debt collectors often mislead or lie to consumers about the imminence of a wage garnishment if the consumer doesn't pay immediately. A federal student loan collector may institute an administrative wage garnishment against a consumer who is delinquent. No judgment is required. But there are important steps that a collector must follow before starting an administrative wage garnishment. They must send the consumer a notice--at least 30 days before starting the garnishment--that advises the consumer of their right to inspect the records related to the debt, their right to a written repayment agreement, and their right to a hearing. The consumer then has 15 days to request a hearing. And a private student loan collector doesn't have the ability to do an administrative wage garnishment. They have to sue the consumer and get a court judgment first. So, a collector can't just start a wage garnishment immediately if the consumer doesn't pay and any threats to the contrary probably violate the FDCPA.

Lies about how to get a federal student loan out of default

Debt collectors often lie to or mislead consumers about the ability to get a loan out of student loan collections. A federal student loan is considered to be in "default" if the borrower goes 270 days without making a payment. Once the loan is in default, a 25% collection fee may be tacked on. But a borrower can get a federal student loan out of default by "rehabilitating" the loan. This means making nine voluntary, reasonable, and affordable monthly payments within 20 days of the due date during ten consecutive months. A borrower may also be able to get the loans out of default by consolidating into a single loan. Debt collectors often tell consumers that there's nothing they can do to get the loan out of default, or don't tell them about all of their options, which may violate the FDCPA.

Telling consumers that they can't discharge student loans in bankruptcy

Student loan collectors often tell consumers that student loans can't be discharged in bankruptcy. While this is often true, it isn't always true. A borrower may be able to get a student loan discharged if they can prove undue hardship. The burden of proving undue hardship is very difficult, but it can, and has, been done. A debt collector that tells you that student loans can never be eliminated in bankruptcy isn't telling the truth and is likely violating the FDCPA.

Illegal contacts with third parties

Under the FDCPA, a student loan collector (or any collector) can't communicate with your family members, co-workers, friends, or other third parties. Even threats to do so probably violate the FDCPA.

The bottom line

If a student loan collector chooses to give a consumer legal advice, they better get it right. Making false statements about the law or a consumer's options probably violates the FDCPA.

How chapter 7 bankruptcy works

The word “bankruptcy” may conjure images in your mind of auctioneers selling all your property except the clothes on your back. The reality is that Chapter 7 bankruptcy isn’t anything like that. The three most common reasons that people file bankruptcy are divorce, job loss, and medical bills. It’s very likely that you have friends, family or co-workers who have gone through bankruptcy and that you never heard a word about it.

So how does Chapter 7 bankruptcy work? We offer a 30-minute free phone consultation where we can review your options with you. We collect information about your income, expenses, debt and assets. After this initial evaluation we help you figure out whether you qualify for Chapter 7 (this will depend on income, family size, etc. though most folks who come see us do qualify).  Next, we discuss whether the debts can be wiped out in bankruptcy. Taxes can be dischargeable sometimes, same with student loans. Alimony/child support are dischargeable. Credit cards, personal loans, utility bills and medical bills can be wiped out.

If the client qualifies for Chapter 7, we discuss the ramifications of bankruptcy. It may be more difficult to get a mortgage for the next few years and any car loan you take out will likely be at a higher interest rate than someone who hadn’t filed might qualify for, but in general, you can overcome these disadvantages by building credit after bankruptcy. Job seekers and people who might be looking to rent an apartment should know that only a very small percentage of employers and landlords will run credit checks.

Next, the conversation turns to assets. People want to know what property they can keep in a bankruptcy. The short answer is that you would only have to surrender property which is not “exempt.” The bankruptcy code is full of exemptions. Your clothes, furniture, household goods are safe unless you’re a Kardashian or something. You can generally keep your house and car, though some people use bankruptcy to get rid of underwater houses or cars.

The Process

If a client decides to file, we get started putting together all the required paperwork and filling out schedules. Then we file the case with the court. This filing begins what is called the “automatic stay.” During the automatic stay no creditors can contact you, either by telephone or by mail. If they do, we may be able to sue them and collect money damages.

Approximately one month after filing, you’ll meet with a bankruptcy trustee. This is called a 341 meeting. It’s the trustee’s job to make sure you aren’t hiding assets anywhere. It usually takes less than five minutes.

About sixty days after the 341 hearing, if all goes well, the bankruptcy is confirmed and all your dischargeable debts are eliminated. This means that the creditors can never attempt to collect the debts again, and you get a fresh start.

"As is" isn't a free pass to rip you off

We get a lot of calls from people who have been fraudulently sold cars with serious defects. When the buyer confronted the dealer about the problem and demanded her money back, the dealer insisted that the car was sold "as is," and so it's "not my problem." But the dealers don't understand the law--there are several reasons why a buyer has legal claims even when the car is sold as is. Let’s break down a few of them here:

• The car was sold with a warranty or a service contract. Under federal law, a dealer can't disclaim "implied warranties" in a sale if it provided a warranty or a service contract.

• The dealer lied about the vehicle’s condition. Under Minnesota law, a dealer can't sell a vehicle as-is if it makes a false statement about a serious defect.

• A dealer can't get off the hook for specific statements it made about the car. A dealer’s verbal statements about the car, called express warranties, can never be disclaimed. This means that if the dealer said "the car has never been in an accident," or or "the check engine light is only on because the car needs a new oxygen sensor" when it actually needs a new engine, it can't squirm out of those untrue statements by hiding behind "as is."

There is a lot of nuance to these scenarios and a detailed legal analysis is required before it’s clear whether you’ll be able to defeat “as-is” in your case. But it’s important for buyers to know that just because their car was sold “as-is” doesn’t mean that they’re out of luck.

Sold a vehicle “as-is” and wondering if you can do anything?
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How to dispute an error on your credit report

It's an unfortunate reality that many consumer credit reports contain errors. Here's what to do if you discover an error on your credit report:

Write a letter to the credit reporting agency explaining what information you believe is inaccurate

When the credit reporting agency gets your letter, they must conduct an investigation and remove any information that cannot be confirmed as accurate. The CRA is required to send the furnisher (the business providing the information on the report) all of the information that you provide. Your letter should contain the following:

• (a) Your full name and address. You may also consider including your social security number to ensure that the CRA locates your file.

• (b) Identification of every single item that you believe is inaccurate. One way to do this is to include a copy of your credit report and circle each of the items you dispute.

• (c) An explanation of why each disputed item is incorrect. Be detailed and describe your dispute as if you were explaining it to a young child. CRAs may disregard your dispute if it isn't sufficiently detailed.

• (d) Attach copies of all of the proof that you have that supports your dispute.

• (e) Tell the CRA if you have previously disputed these items, provide the details of these prior disputes (including any phone disputes), and explain how the CRA's failure to correct the errors is harming you.

• (f) Most importantly, tell the CRA what you want them to do (ie. delete the incorrect entry; modify it, etc).

Mail the letter certified, return receipt requested, and keep a copy of the letter and green card for your records

Address the letter to the credit reporting agency whose report contains the error. Some experts advise sending a copy of the dispute letter to the furnisher. This isn't a bad idea, but you're not required to do so. The CRA is required to send the furnisher all the information that you provide them with.

You may have to write several dispute letters

The CRA may not fix the error after your first letter. Be persistent and write follow-up dispute letters until you get the mistake fixed. Avoid the shortcut of just sending the CRA another copy of your first dispute letter. Read their response to your previous dispute letter and do your best to address the reasons they denied your dispute in your follow-up letter. Don't be afraid to detail your previous attempts to fix the error and to describe the harm the CRA's failure to correct the mistake has caused you in these follow-up letters. And be sure to keep copies of all the letters that the CRA sends you in response to your dispute letters.

If you've written multiple letters and the CRA still hasn't fixed the error, it's time to talk to a consumer attorney

If you've followed all these steps and the error hasn't been fixed, contact a consumer attorney with experience handling cases under the Fair Credit Reporting Act.

Finally, a few words of caution

• It's perfectly acceptable for a CRA to report accurate negative information. Don't abuse the dispute process by seeking removal of accurate negative information. Similarly, be very wary of any credit repair "specialist" that promises to improve your credit score by using repeated and shallow dispute letters or similar questionable tactics.

• It's much better to write dispute letters than to dispute over the phone or to use the CRA's internet form. Writing letters creates a paper trail for your records and it allows you to attach proof of your dispute. It's also possible that a CRA's internet dispute form might require you to waive some of your rights when submitting your dispute electronically.

• Avoid using sample dispute letters that you find on the internet. Many of the sample letters you will find on the internet are shallow, deceptive, or even fraudulent. There is no magic language for writing a good dispute letter. Just adequately identify yourself, identify the account you're disputing, and provide a detailed explanation of the error. It's much better to use your own words than to rely on boilerplate language from a possibly untrustworthy source on the internet. If you must look at a form letter before writing your own, there's a sample letter on the Federal Trade Commission web site.