My last two blogs have focused on wiping out student loan debt. The first blog, Wiping out Student Loans in bankruptcy is difficult discussed the general guidelines to obtaining a discharge of a student loan in a bankruptcy proceeding. In general, it is a very challenging and frequently fruitless endeavor but not necessarily impossible. My second blog focused more narrowly on the issue of Can you wipe out Private Student Loans in Bankruptcy? An important distinction between federally guaranteed student loans and private student loans was discussed and how one individual successfully appealed her case to the Bankruptcy Appellate Panel for the 8th Circuit Court of Appeals. Now, there is one more important factor to consider: The Statute of Limitations with respect to private student loans.
What is the Statute of Limitations and how does it apply to student loans or bankruptcy?
With regard to debts, the statute of limitations is a time limit on how long a creditor can wait to sue you. If they wait too long, then the debt becomes unenforceable by law or, at a very minimum, provides you with an effective affirmative defense. While there are many details to consider, here are some important factors to consider:
- Each state has different time limits;
- If you move between different states after the debt is incurred, you have to be super careful in calculating how long the statute of limitations runs;
- The federal government sometimes has time limits too but not always;
- You must take action if you are sued after the time limit (statute of limitations) has passed, i.e., raise the issue if you are sued;
- Every time you make a payment on the debt (or potentially even acknowledge the validity of the debt), the time clock is reset to zero;
- A debt that is time barred under state or federal law (namely, the statute of limitations has passed) is also barred in a bankruptcy proceeding; and
- A creditor who sues you after the statute of limitations has passed may subject itself to a Fair Debt Collection Practices Act (FDCPA) penalty.
Wow, that’s a lot of stuff to consider! Yes, it can be complicated and creditors normally just don’t roll over even if they have waited too long to sue you. They always think they are right and don’t necessarily want to play by the rules…..
Do I need to file bankruptcy if the statute of limitations has expired on my private student loan?
No, not if that is your only financial problem. You are entitled to the statue of limitations defense regardless of whether you are inside of a bankruptcy or not. But, you have to be able to prove your defense and all of the factors mentioned above. It is not sufficient to just allege the defense. However, the creditor is also on the hook at some point for proving that the statute of limitations has not passed once the issue is raised effectively. Alternatively, if you do need to file bankruptcy because of other reasons, you can do so and also wipe out the private student loan debt if the statute of limitations has passed. While in bankruptcy, your attorney can file an Adversary Proceeding (which is basically a miniature federal lawsuit) against the lender to certify and confirm that the debt is in fact wiped out. There is obviously an extra charge for this service, but if your student loan is significant, this is money well spent to put closure to the issue.
What time limit applies in Nebraska for private student loan debts?
Five (5) years for Nebraska. As mentioned above in the factors to consider, there are potentially complex time lines to compute if you moved from one state to another after the debt was incurred. And, remember, there is NO statute of limitations applicable to federally guaranteed student loans.
Student loans are notoriously difficult to deal with, inside and outside of bankruptcy. However, with the right facts and knowledge, it is possible, albeit difficult, to obtain relief from student loan debt.