CFPB Says Student Loan Companies Unlawfully Trying to Collect Discharged Debts

If you have had your student loan debt discharged through a Chapter 7 or Chapter 13 consumer bankruptcy case, the creditor is not permitted to continue making attempts to collect that debt. To be sure, you are no longer liable for a debt that has been discharged in bankruptcy, and creditors and debt collectors cannot try to hold you liable for discharged debts. However, according to a recent article in MarketWatch, the Consumer Financial Protection Bureau (CFPB) recently acknowledged that lenders are violating the law by collecting student loan debt that has already been discharged in bankruptcy. The CFPB is now telling lenders that they need to repay consumers who have made payments on discharged student loan debts. Our Oak Park consumer bankruptcy lawyers can tell you more.

Learning More About Unfair Practices By Student Loan Lenders

According to the article, “for years, borrowers have been going to court claiming that student loan companies were illegally collecting on debt they had discharged in bankruptcy,” and the CFPB recently “says it agrees and is ordering the firms to give consumers their money back.” Indeed, according to a recent bulletin from the CFPB, “servicers improperly returned non-qualified education loans to repayment after a bankruptcy concluded and continued to bill and collect payments on the loans, even though the borrowers’ bankruptcy discharges released them from these debts.”

The CFPB clarified that these actions by creditors and debt collectors “violated the Consumer Financial Protection Act’s (CFPA’s) prohibition on unfair, deceptive, or abusive acts or practices.” The CFPB has ordered student loan servicers to stop attempting to collect, and to stop collecting, payments on loans that have been discharged in bankruptcy. In addition, the CFPB is “conducting a multi-year lookback” to determine whether servicers have collected payments on discharged loans in the past and, when they have, ordering the services to issue refunds to consumers who were impacted.

Seeking a Discharge of Student Loans in Bankruptcy

Many consumers are dealing with the problem outlined above. Yet given that it has now become easier to discharge student loans in bankruptcy based on the new guidance, it is more important than ever to be clear that servicers and lenders cannot collect on student loans discharged in bankruptcy.

Are you considering filing for bankruptcy and asking the court to discharge your student loans? You should know that the new guidance does not change the requirements for discharging student loans in bankruptcy, but it does make the process significantly easier. Accordingly, any consumer with significant student loan debt who may qualify to have their student loan debt discharged in bankruptcy should seek advice from an attorney.

The director of the CFPB, Rohit Chopra, emphasized, “When a court orders the discharge of a loan, lenders and servicers should not treat this as a suggestion.” To be sure, student loan services and lenders are required to abide by bankruptcy court orders in order to remain in compliance with federal law.

Contact an Oak Park Bankruptcy Lawyer

Whether you have been impacted by student loan servicers continuing to collect on discharged student loan debt or you have questions about seeking a discharge of student loans in consumer bankruptcy, our Oak Park bankruptcy lawyers are here to help. Contact the Emerson Law Firm to learn more.


See Related Blog Posts:

Top Things to Consider About Student Loans and Bankruptcy

Checklist for a Chapter 7 Bankruptcy

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