Consumer Bankruptcy Journal Summer 2016 | Page 38

IN SPATE OF PRIVATE STUDENT LOAN LAWSUITS ONE DEFENSE STANDS OUT By Richard D. Gaudreau, Bankruptcy Attorney in New Hampshire I n my opinion, private student loans are the worst debt in America, bar none. I didn’t come to this conclusion lightly, but only after comparing the legal options available to clients facing foreclosures, tax liens, etc. and speaking to borrowers who tell me they have their federal loans under control, but have no solution to their private student loans. Although IRS taxes can be discharged in bankruptcy in certain instances, private student loans will never be automatically discharged. The unwillingness of private student loan businesses to offer a borrower a plan to rehabilitate a private student loan to escape default on a credit report has led some observers to conclude this is creating a real drag on the economy. With $1.2 trillion in student loans totaling more than this nation’s entire credit card debt, the private student loan problem is one begging for a solution. With the law presenting so few options, creative lawyering may help borrowers 38 CONSUMER BANKRUPTCY JOURNAL facing this type of lawsuit to help level the playing field. In a December 3, 2014 article in the Wall Street Journal, the Ombudsman of the Consumer Financial Protection Bureau accused the private student loan industry of failing to do enough to help borrowers in financial distress. While lawsuits are rare in the collection of federal student loans, they are much more common for private student loans. I’ve represented several clients facing lawsuits filed by National Collegiate Student Loan Trusts (“NCT”), the assignee of thousands of securitized private student loans. The number of lawsuits filed by NCT has become a national phenomenon with one Businessweek reporter in an article on June 3, 2015describing NCT as a “lawsuit machine,” filing more than one lawsuit per day in some states. A review of New Hampshire civil dockets indicates there have been Summer 2016 at least 113 lawsuits filed by NCT in New Hampshire courts from 2014 to present. Most are filed in Superior Court with a few in District Court. Most borrowers are unrepresented despite the dire consequences of a default. Judgments are collectible for 20 years in New Hampshire. The usual scenario before litigation involves a demand for a payment far beyond the borrower’s means and a refusal to negotiate something more affordable. Unlike federal loans, private student loans are not mandated by law to offer borrowers affordable repayment plans. This impasse inexorably leads to a default and litigation although few private student loan businesses are as litigious as NCT. With relatives often acting as co-signers, lawsuits often involve a parent as co-defendant and the possibility of an attachment against a home with significant equity. Lawyers defending borrowers from NCT National Association of Consumer Bankruptcy Attorneys