A recent media firestorm has been reporting that up to $5 billion in student loans with National Collegiate Student Loan Trust (NCSLT) could be wiped out. Unfortunately, the media (as usual) has sensationalized their reporting and not done a very accurate job of explaining the situation involving NCSLT.
Most of the time when student loans are discharged, it is part of a Chapter 7 bankruptcy. In order to discharge a student loan, you must file an adversary proceeding and prove undue hardship. See 11 USC § 523(a)(8). However, this isn’t the approach that most of the media is contemplating.
Forbes and other media outlets have suggested that as a result of lost or destroyed records, NCSLT can not prove the legal chain of ownership for the loans they intend to collect on. This is deja vu to Wells Fargo and how people challenged robo-signed mortgages after the financial crisis. It was (and to some extent still is) common to force mortgage lenders to prove in court the legal chain of custody for a loan. This isn’t a “discharge” as contemplated under the Bankruptcy Code but is a situation where the creditor, in this case NCSLT, can’t legally collect because they can’t meet all requirements to obtain a legal judgment. It is important to keep in mind that if NCSLT has already obtained a legal judgment against you, then this method can’t be used. In that situation, a Bankruptcy discharge might still be a possible option.
This approach isn’t without risk. If you lose, the creditor will have a judgement. NCSLT would have the ability to garnish your wages or place a lien on your home (if you own one now or in the future). The obvious upside is that if you win, NCSLT can not collect on the student loans you had with them.
Sansone Howell is here to help. Call us to set you up a free initial consultation if you believe you have loans with NCSLT.