Student Loan Law – 37 Years of Nightmare Ended

    Student Loan Law

    Student Loan Law Question

    Student Loan LawMy Student Loan Law question is a nightmare. It involves a bankruptcy I filed in late 1986. It was finalizing in 1987. Included was an Illinois State student loan for beauty school. The loan was not removed from my credit report after I filed bankruptcy. The attorney who handled the bankruptcy led me to believe that all debts were discharged.  Now a company (collection agency) is hounding me for payment.

    The attorney I used no longer does bankruptcy and will not speak to me. This loan was disbursed in 1980, and I graduated in late 1980.

    How long can they continue to hound me for something that was removed from my credit as included in a bankruptcy and is now 30+ years old?   In addition, this loan was originally for $2500. And now the collection agency claims I now owe more than $9000.

    Leon Bayer’s Answer to Student Loan Law


    Student Loan LawI might have some good news for you, along with a suggestion on how to try and resolve this. First, the student loan law has changed many times.

    The student loan law as it existed in 1985 provided that governmental student loans were not dischargeable unless the loan had been in “repayment” for at least five years BEFORE the bankruptcy was filed. Hence, your loan is a “governmental loan” because the lender is the State of Illinois. (“Private” student loans were completely dischargeable back in those days.)

    “Repayment” under the old student loan law meant that the monthly installments required on the loan had begun. The time that a loan was in deferment is not counted towards meeting the five year total that you need.

    Trade School Loans

    We know that trade school loans like yours provide for an automatic payment deferment for 6 months following graduation. Thus, you didn’t have to start paying the money back until 6 months later. The effective dates for this requirement are your bankruptcy filing date, (not the date that the bankruptcy was final) and the date your payments were supposed to begin.

    Your Bankruptcy Discharge

    If you graduated in late 1980, then your first payment was probably due 6 months after that, in mid-1981. Since your bankruptcy was filed in late 1986, it sounds like you probably did meet the five year rule and you probably discharged the debt! Tell that to the creditor and see what they say.


    Your Credit Report is Irrelevant

    The fact that your credit report dropped this does not decide the issue. The courts always have the final say on disputes, not credit bureaus. Moreover, there is no statute of limitations on the collection of a government student loan.

    Other Suggestions to deal with this Student Loan

    Law Problem

    My other suggestion is that you retain some other capable local bankruptcy attorney to challenge the collection agency with a response stating that you dispute the validity of the debt and that even if it can be established that you were the borrower, that you had a bankruptcy in 1986 that discharged any such obligation if in fact you ever did owe it.

    Finally, I would make a demand upon them to set forth with specificity the exact reasons why they contend that such obligation, if it really is yours, was not discharged. They may not have sufficient documentation available ater so many years to prove who the borrower really is, and they may not have the legal expertise to counter your position that such debt was discharged anyway, even if it was really your debt.

    Later Changes to the Student Loan Law

    Subsequent amendments to the law, (which do not affect you but may be of interest to other readers)  changed this “5 year rule” to seven years. That change in the student loan law was effective on November 29, 1990. after that, another amendment effective October 7, 1998 made such loans completely nondischargeable, except in very unusual circumstances.

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    Leon Bayer and Jeffrey Wishman are Los Angeles Bankruptcy attorneys. They have been practicing bankruptcy lawyers in Los Angeles for 37 years and are Certified Bankruptcy Specialists by the State Bar of California. These are lawyers who bring experience, skill and creativity to the highly complex area of bankruptcy law. At this Los Angeles law firm, the your initial consultation with an expert is free. Mr. Bayer is a coauthor of Nolo's The New Bankruptcy: Will It Work for You?, authors the “Ask Leon” series on Nolo’s Bankruptcy, Debt & Foreclosure blog, and writes on bankruptcy topics for Nolo’s website. In addition, Mr. Bayer devotes a significant number of hours to volunteer legal services. The State Bar of California has commended Mr. Bayer for this work every year since 2004.