Question:
Dear Steve,
In 2001, I took out a private student loan from Great Lakes Higher Education Authority to pay for massage school. After finishing school I took a deferment while seeking work. The payments eventually kicked in and were prohibitively high in combination with high credit card debt and federal student loans. In 2007 I applied for bankruptcy in NY state and had the credit card debt cleared. Great Lakes sold my loans shortly there after to Key Bank.
Since the bankruptcy, I have worked consistently with Key Bank to ensure that my loans were paid in a timely manner, and allowed them to increase my loan payment amount to try and reduce the length of time I would have to pay. They seemed to have inconsistent billing practices, often not issuing bills (neither by mail or email) and stated that due to the nature of my account (bankruptcy - in collection) they could not allow for auto payments from my bank account.
This month July 2015, I again did not receive a bill and wasn't surprised due to their history of ceasing to do so every 6 months or so. When I called them to confirm my mailing address and make a payment, I was told that they were no longer allowed to bill me, contact me, sue me etc. since the Statute of Limitations had run out in my current state of residence (VA.)
1) What happens if I continue to make smaller payments to Key Bank as a gesture. Does this serve as an acknowledgement of obligation and thus re-instate the VA Statute of Limitations?
2) How does this new loan status affect my credit report which has finally begun to repair itself 7 years after the initial bankruptcy filing?
SeekingASnorkel
Answer:
Dear SeekingASnorkel,
If you start making payments again you risk the danger of restarting the clock on the statute of limitations. Just because it seems to have run out for you does not mean they can't attempt to collect, just not sue you.
The private loan should fall off your consumer credit reports after 7 years and 180 days from the first time it was last reported delinquent.
Most people make the critical mistake of not actively participating in repairing their credit after bankruptcy and let far too much time pass. Repairing credit after bankruptcy is really a 1-2 year affair. Read Life After Bankruptcy: How to Quickly Have Great Credit and Dumb Mistakes to Avoid.
I'm also think there is a good chance your private student loan should have been eliminated in your bankruptcy if the school was not Title IV certified. See These Private Student Loans Can Be Easily Discharged in Bankruptcy.
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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.