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Bankruptcy Basics: Form 55 Letter to Client After Discharge

[Editor’s Note.121]

Dear [name]:

You should have received by now, as we did, a copy of your discharge in bankruptcy. This document certifies that you have been discharged from liability for payment of any and all debts which are made dischargeable by the Bankruptcy Code.

Bankruptcy Basics: Form 56 Debtor’s Motion to Dismiss Chapter 7 Case

[Editor’s Note.122]

[Caption: Official Form 416A]

Debtor’s Motion to Dismiss Chapter 7 Case

The Debtors in the above-mentioned case, by their attorney, pursuant to 11 U.S.C. § 707, hereby move to dismiss their bankruptcy case for the following reasons:

1. A voluntary petition under chapter 7 of the Bankruptcy Code was filed by the Debtors on [date].

Bankruptcy Basics: Form 57 Debtor’s Motion to Reopen Case

[Editor’s Note.123]

[Caption: Official Form 416A]

Debtor’s Motion to Reopen Case

The Debtor, by counsel, requests that the above-captioned case be reopened pursuant to 11 U.S.C. § 350(b) in order to accord relief to the Debtor and in support thereof avers as follows:

1. The Debtor filed bankruptcy pursuant to chapter 7 of the Bankruptcy Code on [date], and received a discharge pursuant to 11 U.S.C. § 727 on [date].

Fair Credit Reporting: 10.2.1.3 FCRA Private Remedy for Furnisher Reinvestigation Obligations in Response to a CRA Request

Creditors, debt collectors, and others who furnish information to CRAs must participate in reinvestigations conducted by the CRAs when consumers dispute the accuracy or completeness of information with the CRA, and must follow certain steps to correct erroneous information.27 There is a FCRA private right of action to sue creditors and other furnishers who fail to comply with these requirements.28

Student Loan Law: 17.2.3.1 Generally

The Higher Education Act (HEA) does not include any minimum requirements for state consumer protection oversight. It simply provides that to be eligible for Title IV funding, an institution must be “legally authorized” by the state to provide a program of postsecondary education.224 This is referred to as “state authorization.” State regulatory requirements vary widely.

Student Loan Law: 8.1 Overview

The government has extraordinary powers to collect student loan debt. Federal student loan collection powers have grown so much over time that the government rarely sues borrowers, opting instead for an array of extra-judicial collection tools. These extra-judicial collection tools are discussed in detail in Chapter 9, infra.

Student Loan Law: 18.2.2.1 Generally

The FDCPA applies to collection of “debts” by “debt collectors.” “Debt” is defined as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services that are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”10 Student loan debts fall within this definition.11

Student Loan Law: 8.3.5.1 Generally

This section discusses laws and requirements related to credit reporting on federal student loans generally and defaulted loans in particular.

Student Loan Law: 18.2.1 Fair Debt Collection Practices Act Overview

Whether it be a federal or private student loan, the federal Fair Debt Collection Practices Act (FDCPA) is the main statute offering student borrowers remedies for debt collection deception and harassment.1 The FDCPA prohibits a number of specific collection practices, more generally prohibits unfair and deceptive collection practices, and sets out a number of affirmative obligations for collection agencies.2

Student Loan Law: 9.4.2.3 Notice of Garnishment

The DCIA requires notice to the borrower before garnishment.140 Notice must be sent by mail to the borrower’s last known address a minimum of thirty days before the initiation of garnishment procedures.141 The notice must inform the borrower of the nature and amount of the debt, the agency’s intention to initiate garnishment, and an explanation of the borrower’s rights.142 Failure to follow these notice requirements or misrepresentations abou

Student Loan Law: 7.4.4 Costs Associated with Rehabilitation

Federal law permits collection fees of up to 16% of the unpaid principal and accrued interest at the time of sale of a rehabilitated loan to be added.201 However, borrowers may be assessed far lower collection fees, especially if their loans are held by the Department or if they rehabilitate quickly after defaulting.

Student Loan Law: 8.4.2 Application of Collection Fees to Payments

Before the Department of Education (the Department) decided to end the use of private collection agencies (PCAs) in 2021,152 the collector payment system was structured so that the contractors were typically paid a percentage of the money they collect. PCAs charged the Department a contingent fee for any payments made by the borrower on a loan placed with the PCA by the Department. The Department passed these costs onto borrowers to the extent allowed by law.153

Student Loan Law: 9.3.7 Preventing Tax Offsets

The only surefire method of avoiding a tax refund intercept for a borrower currently in default is to lower federal income tax withholding from earnings and any estimated tax payments. The taxpayer may complete a new IRS Form W-4 (Employee’s Withholding Allowance Certificate) to accomplish this. Then, at the end of the year, the taxpayer is not owed a refund and there can be no interception.

Student Loan Law: 18.2.2.3 Independent Collection Agencies and Attorneys

The FDCPA applies to independent collection agencies because debt collection is their principal purpose and they are also collecting debts owed to another.15 In 2021, the Department of Education terminated its contracts with private collection agencies.16 Currently, Maximus Federal Services, Inc. services all defaulted federal loans.17

Student Loan Law: 18.2.2.5 Servicers

In the Direct Loan Program, the Department hires private and nonprofit companies to service the loans.32 Federal Family Education Loan (FFEL) Program lenders and private student loan lenders may do the same. Servicers handle routine account tasks, such as receiving and processing payments, determining the amount outstanding, and reminding borrowers as to when payments are due.

Student Loan Law: 7.3.5 Costs Associated with Consolidation

When consolidating defaulted Direct Loans or FFEL Program loans, lenders may add up to 18.5% of the principal and interest to the amount due to pay for collection fees.115 However, for the past several years, the Department has been charging lower collection fees upon consolidation. In response to advocates’ questions, the Department stated in October 2016 that:

Student Loan Law: 8.4.3.1 “Reasonable” Collection Fees

The Higher Education Act (HEA) provides only that collection fees must be “reasonable.”158 The Department claims that this provision applies to all loans, whenever made.159 Promissory notes for many, but not all, student loans contain terms obligating borrowers to pay collection costs as well.160 The Department’s regulations require guaranty agencies to charge collection fees, whether or not provided for in the borrower’s promissory note.

Student Loan Law: 9.5.1 Introduction

In 1996, Congress strengthened the debt collection powers of federal agencies by enacting the Debt Collection Improvement Act (DCIA).309 Federal government agencies were given the authority to offset formerly exempt federal benefits to collect debts—such as federal student loans—owed to the government.310 A 2011 federal rule that strengthens protections for exempt federal benefits deposited into bank accounts does not apply to the government’s power to offset federal payments to collect fede