Private Student Loans are the single worst debt in existence. They lack any formal Income Based Repayment (“IBR”) plans and the debts are generally not discharged in bankruptcy without undergoing expensive litigation and claiming a special hardship. In recent years, the National Collegiate Student Loan Trust, the largest holder of private student loans, has filed thousands of lawsuits against delinquent borrowers, and I count several hundred such lawsuits filed in Nebraska.
National Collegiate lawsuits are really no different than a basic credit card case, and they suffer many of the same problems:
Trusts Lack Capacity to Sue in Nebraska.
As a general rule, a trust is not a legal entity and lacks the ability to sue or be sued. Rather, the lawsuit should be brought in the name of the Trustee. (See Black Acres Pure Trust v. Fahnlander, 233 Neb. 28 (1989)). The Uniform Law Commission has written extensively on this issue and has proposed a uniform law to create “statutory trusts” that would enjoy the same rights given to corporations to sue or be sued.
A common-law trust arises from a private action without the involvement of a public official. Because a common-law trust is not a juridical entity, it must sue, be sued, and transact in the name of the trustee and in the trustee’s capacity as such. By contrast, a statutory trust is a juridical entity, separate from its trustees and beneficial owners. It has the capacity to sue, be sued and transact on its own.” Uniform Law Commission.So, is National Collegiate a “common-law” trust or a “statutory” trust? Does that distinction make a difference in Nebraska? National Collegiate is organized as a Delaware trust agreement and that state does provide for statutory trusts empowered to sue. There are arguments to be made both ways, but until the courts rule on this issue, the first defense to these lawsuits is to file a motion to dismiss. National Collegiate Must Show They Own the Loan. You did not borrow money from National Collegiate. Most likely the loan originated from JPMorgan Chase or Bank of American or Charter West Bank. The loan was then assigned several times and eventually wound up in one of the several trust pools managed by National Collegiate. It is essential that National Collegiate be required to provide the “chain of assignment” showing how your loan was specifically assigned from the original lender to the National Collegiate Trust. Failure to prove the entire chain of assignment means the lawsuit must be dismissed for lack of standing. Statute of Limitations. In Nebraska, lawsuits filed for breach of a written promissory note must be filed within five (5) years of the date of last payment or from an acknowledgement of the debt. It is important to demand an account payment history from National Collegiate to verify the date of last payment. Very often the records of National Collegiate are sketchy at best and they seem to struggle to provide detailed account statements. If they do assert a payment was made in the preceding 5 years, research your bank statements to see if their record of payment matches your records. Did a Prior Bankruptcy Case Discharge Some of the Student Loan? Have you filed bankruptcy before? If so you may have discharged some of the National Collegiate obligation already. Although Federal Student Loans are not discharged in bankruptcy (unless you receive a Hardship Discharge), when it comes to Private Student Loans only the amount qualified under Section 221(d)(1) of the Internal Revenue Code is excepted from discharge. I have seen cases where loans were made for $30,000 per year when the actual cost of attending the college, including tuition, books, room and board and transportation expenses, was only $10,000 per year. Also, only loans to a qualified educational institution are protected. National Collegiate often sues for debts that have been partially or entirely discharged. Statute of Limitations are not Tolled During a Chapter 13 Case in Nebraska. If you can go five years without making a payment or requesting a loan deferment, the Nebraska statute of limitations may apply. (See National Bank of Commerce v Ham, 256 Neb. 679 (1999))., The 5 year limit must run prior to the commencement of the lawsuit and you must affirmative claim this defense in the written answer filed with the court. If you sense that you are about to be sued by National Collegiate, consider filing Chapter 13 to run out the SOL clock. Negotiate the Debt. National Collegiate is willing to cut a deal. Even if they are successful in obtaining a judgment, they still have the burden of collecting the debt. The fact that they have initiated a lawsuit means that they probably have not received any payment in years. I have represented clients who were able to settle $150,000 of loans for $30,000. Each case is unique, but National Collegiate is willing to consider reasonable settlement offers. Image courtesy of Flickr and Occupy* Posters.