Still living off credit cards? Can’t figure out how much you could or should spend? Need to save for retirement? Deborah McNaughton, a Brea credit expert, financial coach and author of “The Essential Credit Repair Handbook,” is here to provide her financial advice.
Q: Please advise me on how to handle a collection issue involving student loans. I signed a federal consolidation loan application and promissory note on Aug. 10, 2002 for $37,000. Now, a collection agency is sending me a notice due for the amount $61,430.52.
A. Student loans are nothing to play around with. They are treated differently than a credit card debt and have different repercussions.
When a person has defaulted on a student loan they lose their eligibility for additional federal student aid and it is reported on their credit report.
The fact that your student loan has been turned over to a collection agency basically says the original lender is now taking collection to another level.
Yes, the collection agency can tack on collection costs and the interest will continue to accrue. That is why your balance has gone up and will continue to grow.
You need to read the promissory note that you signed and the terms of repayment. This will more than likely spell out what collection efforts can and will be taken including collection costs and interest.
If you have multiple student loans and are not sure who the original lender is you can look up the lender by going to the National Student Loan Data System.
You need to definitely communicate with the collection agency as soon as possible. Also, try contacting the original lender to see what options you may have between the two. The original lender may push you back to the collection agency.
Write a letter to the collection agency asking for validation and verification of the debt. You need to find out on whose behalf the collection agency is contacting you so that you know which loan is defaulted.
When talking with the collection agency, find out if you can be set up on a monthly repayment plan. The consequences of not paying a student loan are as follows:
- Federal and state taxes refunds may be withheld through a “tax offset.” That means that the state and/or IRS can collect any refund you may have from your taxes in order to collect on the defaulted student loan. This can continue each year until the loan is paid off.
- Wage garnishment can occur with a defaulted loan.
- Bankruptcy in most instances will not allow student loans to be discharged.
The best thing to do is to be proactive and don’t delay in finding out what your options are to take off the pressure and stress.
Q. My sister, 90 years old and in hospice care, has $57,000 in credit card debt because of elder abuse by her son (she refuses to press charges). If she defaults, can creditors seize her checking account? Also, how can we stop the harassing phone calls that are visibly upsetting her?
A. Elder abuse within a family is not as uncommon as most people think. It is shameful for anyone to take advantage of a senior financially. Your sister’s son should be ashamed of himself.
Does anyone have power-of-attorney for your sister? If so are they willing to report her son’s fraudulent activity? Anyone who takes advantage of their mother that way is capable of other fraudulent activity for someone else.
At 90, your sister more than likely does not have any assets to repay the credit card debt.
If your sister is up to it, a letter should be sent to the collection agencies asking for verification and validation of the debt. In the letter, request all records of purchases as well as signed original contracts.
Collection activity must stop until the collection agency responds to the letter. It is best to do this within the first 30 days that a collection letter was first received.
Get a copy of the Fair Debt Collection Practice Act to learn what the collection agencies are able to legally do. They are not allowed to harass, threaten or abuse anyone that they are trying to collect a bill from.
Another letter should be sent requesting the collection agency to cease and desist any contact with your sister. Have your sister sign the letter as well or use her power-of-attorney to sign for her. The collection agency may send one more letter of their intent to collect.
Once the collection agency realizes that your sister isn’t going to repay and doesn’t have any assets to collect from they may slow down their efforts to collect or drop it all together.
The statute of limitations in California for a collector to file a lawsuit for a debt is four years from the date of last activity on the account. The only way a collector can get a garnishment or levy a bank account is if they have a judgment from a lawsuit. They can’t randomly go into anyone’s bank account.
For more credit advice, visit my website www.financialvictory.com
Do you have questions about credit, dealing with debt or budgeting? Send your questions to moneymatters@ocregister.com with “credit question” in the subject line. Please include your name and a phone number where you can be contacted. They will not be published.
