Dealing With Debt

Using a credit card is borrowing money at a very high interest rate. 

Ignore temporary “teaser” rates. A “teaser” rate is a very low interest rate offered for a short time that automatically goes up. If you use the card when the interest rate is low and don’t pay it off right away, you have to pay it back at the much higher permanent rate.

Other Things to Consider
Check if the card offers a “grace period.” A “grace period” means no interest charges if you pay your account in full before the due date. Some cards charge you interest from the date you use your card to make a purchase. 

Find out if the company charges an annual fee for the card. An annual fee is a price you pay to the credit card company once a year to keep the card open. Annual fees can run from $25 to $100 or more. Read the terms carefully to see if the company raises your interest rate if you make a late payment.

Make sure you also look at other charges like

• transaction fees (often charged when you use the card to get cash, called a cash advance)
• late charges
• over-the-limit charges (when you spend more than the card allows)

If you have a credit card with a high interest rate, transaction fees, an annual fee or no grace period, think about cancelling the card. You can cancel a credit card at any time, but you still have to pay any money you owe.

• Try to pay off the total balance each month.
   
• If you can’t pay it off, try to pay more than the minimum payment. 
  
  Sometimes the minimum payment doesn’t even cover the amount of interest you are being charged each month. The minimum payment is set too low to pay down the debt, so the amount you owe keeps growing. 
   
• Pay one card off at a time. Pay as much as you can. The more you pay, the sooner you can pay off the card. Then go on to another. 
   
• Carefully check your statement each month to look for mistakes and charges that are not yours. If your credit card is lost or stolen and someone else makes charges, the most you have to pay is $50, under the Truth in Lending Act. 
   
• Make your payments on time. If your payment is late, the card charges a late fee. Many cards raise the interest rate if the payment is late.
   
• Avoid special services and programs offered by credit card companies. These are things like credit card fraud or loss protection and life insurance. Most of these services are a bad deal. They usually cost a lot and are not needed.
   
• Check to make sure your credit card company has not added a service you don’twant. 

At least once every 12 months you can get a copy of your credit report for free from each credit reporting bureau (Transunion, Experian and Equifax). Sometimes you can get a free copy more than once a year. See our Credit Reports fact sheet for more information.

The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects you from abusive practices by debt collection agencies. Minnesota has a state law that includes all of the protections of the FDCPA and other protections too. All debt collection agencies doing business in Minnesota have to follow it. 

Debt collection agencies can’t harass or abuse you.

Businesses you owe money to who are directly collecting their own debts, such as department stores or credit card companies, are not covered under the FDCPA.

Within 5 days of its first call or letter to you, the debt collection agency has to send you a written notice. The notice has to include

• the amount of your debt
• the name of the company that you owe
• a sentence telling you that they assume the information is right unless you disagree in writing within 30 days

If you disagree with the notice about your debt, send a letter to the debt collection agency within 30 days. If you send this letter, the debt collection agency has to stop trying to collect it until they send you proof of the debt.

If you do owe the debt, you may be able to set up a payment plan to take care of it. Many creditors are satisfied with a small payment, if it arrives regularly. Ask them for a payment plan. Some creditors freeze or reduce the interest charges if you start making payments which gets the debt collection agency off your back. If you make any kind of deal, try to get it in writing. If nothing else, write it down in a letter to the creditor. Always keep a copy.

If a debt collection agency is collecting on more than one debt, you can choose which debt your payment goes toward. You can’t choose to have your payment applied to a debt you are disputing.

Never give anyone a post-dated check (a check with a later date on it). A debt collection agency is allowed to ask for one, as long as they don't cash it before the due date. But it is not a good idea to give them one. If it does get cashed, you end up bouncing a check.

You can stop the debt collection agency from calling you or writing to you by sending them a letter called a Cease & Desist letter. Your letter should ask them to stop calling and writing to you or it can tell them that you are refusing to pay the bill. 

A sample Cease and Desist letter is at the end of this booklet. This letter is only an example.

Every situation is different. Make sure your letter is right about your situation. Maybe you don’t owe what they claim. Maybe you owe but can’t pay. The most important thing is that your letter is in your own words and says, “Stop contacting me.”

• Use the sample letter to write one about your situation.
• Date your letter.
• Sign it.
• Make and keep a copy for yourself.
• Send your original letter to the debt collection agency. 

If you can, send the letter by Certified Mail with a return receipt. A return receipt proves that the debt collector got it. The Post Office can help you.

You can also create a Stop Contact letter online. This is a step-by-step form-helper that lets you print out a finished letter at the end. 

After getting your letter, the debt collection agency can only call or write to you to tell you what legal action they plan to take. 

Remember, this doesn’t give you the right to ignore court papers. For example, if you get a letter called an Order for Disclosure saying you have to tell them what money and assets you have, you have to respond. If you don’t, you could face fines or jail time for contempt of court.

In general, a debt collection agency can’t contact other people and tell them about your debt. They can’t tell your employer, co-workers, neighbors, parents, relatives, or friends about your debt. 

If they need your home address, work address or phone number they can call people to ask for it. But they can’t say that you owe money. They can’t say that they work for a debt collection agency unless they are asked.

It is illegal for debt collection agencies to

• use obscene or abusive language
• call before 8:00 a.m. or after 9:00 p.m.
• call you at work if they know your employer does not allow personal calls
• accept cash without giving you a receipt
• threaten you with criminal prosecution
• contact you directly if they know you have a lawyer
• make a letter look like it is from the government, the court or a lawyer
• fail to give you the full name of their agency
• threaten to take any legal action that they do not really plan to take
• give you legal advice, like "You have no legal defense to this debt."

If you think a debt collection agency is breaking the law, keep careful records of your contacts. When they call, write down the following

• the date
• the time
• the name of the caller
• and what was said

You might be able to take the debt collection agency to court. Usually, you need to start the lawsuit within 1 year. Call a lawyer or your local legal aid office at 1 (877) 696-6529.

To make complaints about debt collection agencies, write to

Office of Minnesota Attorney General
445 Minnesota St Ste 600
St. Paul, MN 55101
(651) 296-3353 or 1-800-657-3787
https://www.ag.state.mn.us/Office/Forms/ConsumerAssistanceRequest.asp

MN Department of Commerce
85 7th Place East, Suite 280
St. Paul, MN 55101
651-539-1600 or 1-800-657-3602
https://mn.gov/commerce/consumer/file-a-complaint/

Federal Trade Commission
1-877-FTC-HELP (382-4357)
https://reportfraud.ftc.gov/

Write in detail the actions by the debt collection agency that you believe violated your rights. See the Sample Debt Collection Cease and Desist Letter at the end of the booklet for examples.

Threats of being sued, and actually being sued, are different things. It is expensive to go to court. If the debt isn’t large enough, some debt collectors don’t think it is worth going to court.

When a debt collector starts a lawsuit against you, it does not mean they are going to win in court. 

Even if the debt collector wins the lawsuit, there is no guarantee they will collect the amount of money they won.

If the debt collector starts a lawsuit and wins, the court awards them a “judgment.” A “judgment” is a court order stating the specific amount you owe. The judgment usually includes the amount the judge says you owe, plus allowed court costs and fees. The judgment earns interest, so if it is not paid the amount goes up every day. 

The court’s order (judgment) doesn’t force you to pay. The order just says you owe the money. Usually the debt collector takes steps to force you to pay. 

For example, they can 

• garnish (take money from) your wages, other income or bank accounts (see Chapter 5)
• seize (take, called attachment) your property
• force you to pay to get your property back
• take your property to sell it and put the money toward paying off the judgment

Your wages or bank account could be garnished after a debt collector files a lawsuit but before they get a judgment against you. If you get a “Summons and Complaint” (which means that a lawsuit has started) follow the instructions on it to avoid garnishment. See Chapter 5 for more information.

You know when you are sued because you get papers called a “Summons and Complaint.”

Getting the papers is called “Service.” Service means papers are delivered to you in person, by mail and sometimes through a published notice in the local legal newspaper.

• If they are delivered to you in person, a “private process server” or a sheriff’s deputy delivers them. 
   
• If the papers come in the mail and are about a lawsuit filed in the district court, you are asked to sign and return a letter saying that you got them. 
   
  • If you don’t sign and return these papers, the court can make you pay the other side’s costs to serve the papers on you.
     
• If you are served by published notice in the newspaper, only the Summons is published. Being served by published notice usually means that the person who is suing you doesn’t know where you are. 
   
  • If you see the published notice, it is up to you to contact the person or business that is suing you (the plaintiff). Tell them where you are. Once you tell them, they have to serve you with the actual Summons and Complaint papers. 
     
  • If you don’t see the published notice, the lawsuit can go ahead without you. 

If you are sued, always respond to the lawsuit, especially if you think the debt collector’s claim is wrong. 

If you don’t respond the debt collector almost always wins by “default.” You are in “default” if you do not respond to a lawsuit. 

How to respond depends on if you are sued in Conciliation Court or in District Court. Highlights about each court are below. There are more details later in this chapter.

Conciliation Court is the small claims court in Minnesota. If you are sued in Conciliation Court

• You are usually served by mail. 
   
• The Summons and Complaint tells you the date, time and place for your court hearing. 
   
• The papers give you a short statement about the claim (demand) brought against you.
   
• You don’t have to respond in writing unless you have a separate claim against the person who is suing you (counterclaim).
   
• You have to tell the judge in court why you should not be held responsible for the claim filed against you.

If you are sued in District Court 

• The Summons and Complaint does not tell you the date or time for the hearing. The hearing is scheduled later by the court administrator’s office. 
   
• Your response to the papers has to be made in writing to the lawyer who is representing the other person.
   
• Your response has to be made within a limited period of time, usually 20 days. If you don’t respond in the required time period, you are in default.  

Conciliation Court is Minnesota’s small claims court. You can be sued for up to $20,000. 

If the claim is a consumer credit transaction the amount is $4,000. A “consumer credit transaction” is a purchase or loan taken out for personal, family, or household purposes. 

You don’t need a lawyer in Conciliation Court. 

You don’t have to file a written answer to the claim brought against you. If you want to respond to the lawsuit brought against you with a claim or lawsuit of your own against the person who is suing you, then you have to bring a “counterclaim.” 

• To bring a counterclaim, you have to go to the court administrator’s office at least 5 days before the date of your hearing to fill out the forms. Ask the court clerk what forms you need.

You might want to try to settle your case before the hearing by making an agreement with the other side. Here are some things that you could agree to.

• You might agree to pay some amount but not as much as the other party sued you for.
• You might agree to a plan to make payments on the original amount.
• You might agree to turn property over to the other party in settlement of your claims. 

If you want to settle with the other side, call or write to them before the hearing date. In the metro area you may even be able to arrange for a mediator to work with the two of you before the hearing to help settle the dispute. In Minneapolis, Duluth, and St. Cloud, you can call the Conflict Resolution Center at (612) 822-9883. 

If you settle your case, put your agreement in writing. Be as clear as possible in describing what both sides agreed to do. Take the written agreement with you to court. Ask the judge to approve the agreement and make it a part of the court order in your case. This protects you and the other side in case there is a disagreement later. 

You have to go to court on the day and at the time scheduled. If the court is running behind schedule you should wait. Your case will be called for hearing sooner or later. 

If you know that you can’t go on the scheduled day or have to leave due to an emergency, call or tell the court administrator’s office as soon as possible.

You can ask for another hearing within 20 days after the scheduled hearing, but you have to be able to prove that you had a serious emergency which made you miss your scheduled hearing. A serious emergency is something like being in the hospital. In very rare cases, you can ask for a new hearing within a reasonable time.

Get ready for your court appearance. You have to speak for yourself so plan what to say before you get there. Make a written outline of everything you need to say.

Talk to any witnesses who might have something to say about your case. Ask them to come to the hearing and tell the judge what they told you. The judge probably won’t accept a written statement from a witness who can’t come to court.  

If a witness you need won’t come to your hearing when you ask them, talk to the court administrator about how to make them come by sending them a subpoena. A subpoena is a court order saying they have to come to court. 

If the plaintiff (the other side) has papers, documents or other things that help your case, and won’t let you see them, ask the court administrator for a subpoena. The subpoena orders them to give you copies of the documents. 

If specific laws or statutes are involved consider going to your county law library (usually in the county courthouse) or the Internet to look up those laws so you can point out how they do, or don’t, apply to your case. 

It is a good idea to

1. Practice the presentation you plan to make in court to the judge. Go and watch a conciliation court hearing well before the time scheduled for your own hearing. You can watch a video about conciliation court online or go to https://mncourts.gov/help-topics/conciliation-court
    
2. Organize your documents and bring all your evidence with you to court. Evidence might include

• photos
• letters
• receipts
• estimates
• leases or other contracts which may be a part of the case
   

3. At the hearing remember that you are in a formal place where you need to make a good impression. Be very polite to the judge and to the other party. 

If you lose and the other party wins, they are the “prevailing party” or judgment creditor. As the prevailing party they get a judgment from the court. The judgment is an order stating you owe a certain amount of money to the other party. If you don’t or can’t pay the judgment amount, the winner can take further action to force you to pay the debt.

They can try to garnish your income or bank accounts or try to seize some of your assets. Some of your income, money and property may be protected. See “Exempt Income and Property” in Chapter 5 and “Don’t Turn Unsecured Debt into Secured Debt” in Chapter 9.

If you lose, you have 20 days from the date of the court’s judgment to appeal the decision to the District Court. If you are sure that you want to appeal, call a lawyer as soon as possible to ask for advice on how to appeal. 

Remember: There is a risk that you lose the appeal and have to pay even more money to the other side. You may need to hire a lawyer to represent you. This could mean even more for you to pay. 

If you appeal to the District Court and lose, the judgment stays on your record for 10 years unless you pay it off or have it removed in bankruptcy. If you do not pay it off, the winner can renew it for another 10 years again and again until it is paid off or removed in bankruptcy. The winner can collect the judgment anytime within the 10-year period if they find out that you have new income, accounts or assets.

Judgment amounts earn interest at a rate set up by law. The interest rate depends on the established rate for the year when the judgment happened. A judgment is added to your credit record just like a bankruptcy and may make it hard for you to get credit.

District Court is more complex than Conciliation Court.  If you get District Court papers, you should see a lawyer as soon as you get them.  If you have a low income, you should contact your local Legal Services office at 1 (877) 696-6529.

The District Court papers you get are called a “Summons and Complaint.” Respond by writing an “Answer” to the Summons and Complaint within 20 days. If you don’t, you normally lose your case by default. Mail your Answer to the other side’s lawyer. If they are not using a lawyer, mail it directly to them. Keep a copy of your Answer for yourself and take it to court. 

Your Answer has to say why you think you do not owe the money the other side is claiming in the lawsuit. The fact that you don’t have the money or can’t afford to pay the amount claimed is not a “defense” and won’t stop the court from entering a judgment against you.                                                                  

If more than 20 days have passed since the date you got the Summons and Complaint, call a lawyer right away.  It may still be possible to present a defense to the court. 

The court may try to get you to settle the case by making an agreement through a process called “alternative dispute resolution.”  This is also called mediation.  You and the other party may be asked to choose a mediator to help you try to reach an agreement.  An agreement might have things like, paying the other party some of the money or making a payment schedule.  If both of you come to an agreement, put it in writing and give it to the judge for review and approval at your hearing. 

If you are representing yourself, prepare for your hearing. It is a good idea to learn what you can about the process of presenting your case and about the laws which affect the outcome of your case. Ask a person you trust to help you practice how to present your case. Practice what to say to the judge.

Garnishment is when someone collects money you owe by taking it out of your paycheck or your bank account. Sometimes, the debt collector gets a court judgment against you, but usually not. Your wages or bank account could be garnished after a debt collector files a lawsuit but before they get a judgment against you. If you get a “Summons and Complaint” (which means that a lawsuit has started) follow the instructions on it to avoid garnishment.

The law protects some of your money from garnishment.

Money that can’t be garnished is called “exempt.” For example, a debt collector can’t take more than 25% of your “net wages,” or $380 a week, whichever is higher. “Net wages” means your take-home pay or what you earn after taxes are taken out. 

You have to fill out papers saying that your money is exempt. If your money is not exempt, try to work out a deal with the debt collector. They might accept a payment plan, or even payment of less than the full amount. If you make a deal, be sure it is in writing and signed by both sides. Keep a copy of it.

Usually, public assistance benefits can’t be garnished. These benefits are called “government benefits based on need.”  Government benefits based on need includes programs like

• MFIP
• Emergency Assistance
• Medical Assistance
• General Assistance
• MSA
• SSI
• Energy Assistance 

Note:  This list does not include all programs that are government benefits based on need. For example, your federal EITC (Earned Income Tax Credit) or your Minnesota WFC (Working Family Credit) is exempt from garnishment.

Other programs like Social Security RSDI and Veterans Benefits are also exempt from garnishment.  If you are not sure if the benefits you get are exempt talk to a lawyer or call your local Legal Services office at 1 (877) 696-6529.

BUT there are times that this money is NOT safe.  Get advice from a lawyer if someone has threatened to take your benefits. 

For example:

• Up to 15% of your social security retirement, disability or survivor benefits can be garnished to pay for government-related debts like child support, student loans and income taxes as long as you get a minimum of $750 each month. You have to get a warning from the U.S. Treasurer before this happens.
   
• Also, your benefits can be reduced or stopped if your county decides that you got benefits that you should not have.

Yes, unless the money is “exempt.”  If your bank account is garnished, you won’t be able to use your money in your account. It will be “frozen” while you claim your exemptions.  You do not get a notice before this happens.  The bank sends you a notice after the money is held.  The notice tells you your rights about exemption.  It will take time before your bank will release your funds. 

If you have written checks or have automatic payments—they may bounce! Talk to the people you wrote checks to and tell them about the problem. If you have set up automatic payments, these will bounce also. Talk to the bank manager about what is happening. They might agree to cancel overdraft charges.

Money in your bank account from certain sources is protected (exempt) from garnishment. Some of those sources are

• government benefits based on need and most other public benefits   
• unemployment benefits
• workers' compensation
• (most) pensions
• life insurance proceeds
• veterans' benefits
• the earnings of your minor child
• any child support paid to you
• disability insurance benefits

Loans, gifts, and other peoples’ money are not protected from garnishment when they are put in your bank account. BUT, if you have a joint account, the other person’s money may be protected.  Talk to a lawyer right away.

Sometimes money that is usually exempt is not protected if you owe debts like

• child support
• alimony or spousal maintenance
• student loans or
• taxes 
   

Exempt wages only stay exempt for 20 or 60 days after you deposit them in the bank.  See the section called “Can they take money out of your paycheck?” in Chapter 5. 

If a bank or financial institution is trying to take money you owe out of another account you have with them call a lawyer right away.

You do not get any warning before your account is frozen. The bank has to send you a written notice and exemption forms after the money in your account has been frozen. If your money is exempt (see above) fill out BOTH exemption notices. Be sure to include copies of your bank statements for the last 60 days. Give one copy to the debt collector who is garnishing you and one copy to your bank. 

If the debt collector does not object to your claim in 6 days, the bank should put the money back into your account. If the bank doesn’t get your exemption notice within 14 days, it keeps holding your money, and you can’t use it.

They can’t take money from your paycheck if

1. You are getting or got “government benefits based on need” in the last 6 months (see “Can your benefits be garnished?")
                
2. You were an inmate in a correctional institution in the last 6 months.

These 2 exemptions protect your paycheck for 60 days after you deposit it in your bank.

Most of your paycheck is protected - even if you are not exempt. Usually, the amount protected depends on how much you make. The most that can be taken is 25% of your take-home wages. BUT if you are making minimum wage, then all of your wages are exempt. No money can be taken from your paycheck.

Only 20 Days: This “25% maximum limit” also applies to paychecks deposited into your bank account – but only for 20 days.   Example: if you deposit a $1,000 paycheck into your bank, $250 can be garnished right away and the other $750 could be garnished after 20 days.

BUT if the garnishment is for child support, then up to 65% of your wages can be withheld.

Yes.  Earnings of independent contractors and self-employed people are protected as much as people who are employed and earn hourly wages or a salary.  All the wage and bank garnishment protections apply.

You should get written notice at least 10 days before your paycheck gets garnished for the first time. Find out if your money is exempt (see above). 

If your wages are exempt, fill out the exemption notice that comes with the letter (written notice). Hand-deliver one copy to the debt collector who is garnishing you and one copy to your employer. Do this as soon as possible. If you do not do it within 10 days, you can still claim the exemption, but it takes longer to stop the garnishment and get your money back. 

You can call the debt collector and ask when they are going to tell your employer or bank to give your money back. The debt collector might ask you for more information or proof, like benefits statements. You might get your money returned sooner if you send them the proof that they ask for. You might need to talk to a lawyer to help you prove your exemption claim. 

If the debt collector objects to your exemption claim, they have 6 days to ask for a court hearing to see if your money is exempt. You can go to the hearing without a lawyer. Remember to bring any documents that help prove your exemption.

IMPORTANT: If you do not claim your exemptions or ask for a hearing on time, you can still do it later. You never lose your right to stop a garnishment or to get your exempt money back. Never rely on legal advice from a debt collector.

Federal and Minnesota state laws “exempt” a certain amount and certain types of property. “Exempt” means they can’t be taken to pay a judgment. This happens when you have little or no income and little or no property. 

You can keep 

• your home if the value is $450,000 or less (unless the debt collector has a mortgage or lien against the property)
• a car worth up to $4,800
• furniture and appliances worth up to $10,800
• money in a health savings account (HSA) with a present value of up to $25,000. 

If you are not sure if your property qualifies as exempt, contact your local Legal Services office at 1 (877) 696-6529 or a private lawyer.

Although debt collectors can use the same methods to collect medical debt as they can to collect credit card debt or debt owed from a loan or other credit, no one voluntarily gets into medical debt.   Minnesota law understands this and has special rules that apply to medical debt.

Under the Minnesota Debt Fairness Act

1. A health care provider can’t refuse to give you “medically necessary” health care if you owe them money for care they gave you in the past. If you do owe money to a health care provider and you can’t afford to pay what they ask you to pay, you should contact the provider and ask for a payment plan. The law allows you to make payments of an amount you can afford to pay.
    
2. If you disagree with a bill and think there is a mistake, the health care provider has to review the bill, correct any errors, and can’t bill you for the charges that are in dispute. If they owe you money, they have to refund it to you within 30 days after completing the review of the disputed bill.
    
3. Anyone attempting to collect a medical debt can’t report the debt to a credit reporting agency.
    
4. Anyone collecting medical debt can’t use abusive collection practices (see “What is abuse and harassment?” in Chapter 3 for more info).

A college education can be one of the best investments you ever make. It can help you find jobs that make more money. 

Many people have to borrow money to pay for school. Student loans are different from other kinds of debt. 

• They can be easier to manage because a number of different payment options are available. 
   
• But they can also be harder to manage because lenders, including Guarantee agencies and the US Department of Education, can be hard to communicate with. 

Remember that you have to repay any loans you take out. Try to finance your education with grants, scholarships, work study, and other types of financial aid as much as possible so you can take out fewer loans. 

If possible, take out Direct Student Loans (made directly by the US Department of Education), because they often offer the best terms.

If you fall behind on student loan payments, the loan goes into “default.” That means the lender may be able to take your money even if you are otherwise “collection-proof.” 

You have a few options available to keep your student loan in good standing. If you can’t make your monthly loan payment, contact your lender.

You can ask your lender to lower the amount of your monthly payments. If you took your loan out after July 1993, the lender may be required to offer you a repayment plan that is based on your income. 

There are 4 types of income based repayment plans:

1. Income Based Repayment (IBR)
   If you have a federal loan and are not in default, you can probably get an IBR repayment plan. This includes anyone with Federal Family Education Loans (FFELs).  
   
   To qualify for IBR, you have to show that you have enough debt relative to income. IBR uses a sliding scale to figure out how much you can afford to pay each month. 
   
   You have to verify your income every year. Your payment may be adjusted if you have changes in income and family size. 
    
2. Income Contingent Repayment (ICR)
   You can only use ICR if you have a Direct Loan or Direct Loan Consolidation. The payment can’t be more than 20% of your earnings above the poverty level. If your income is below the poverty level, your monthly payment could be zero. If you keep making your payments for 25 years, any debt that is left is canceled.
    
3.  Income Sensitive Repayment (ISRP)
   ISRP is the Federal Family Education Loan (FFEL) that requires minimum payments that equal the amount of accrued interest.  With these plans, your monthly loan payment is figured out based on your expected monthly gross income. Adjustments are made every year.
    
4. Pay as You Earn (PAYE)
   To qualify for PAYE, you have to have a partial financial hardship. You have a partial financial hardship if the monthly amount you are required to pay on your loan is higher than the monthly amount you would pay under PAYE.

Income-based repayment plans might change. For the latest information on these plans and eligibility rules, go to https://studentaid.gov/. Another good site is  www.studentloanborrowerassistance.org.

If you work full-time in certain public service jobs, you may be able to get part of your student loan forgiven. 

With a standard loan you should be paid off after about 10 years.  But if you are on a program that lowers your payment amount, it would take longer than 10 years to pay.  In this program, if you make 120 payments (about 10 years) you may be able to stop paying after that.  The balance after 120 payments is the part that can be forgiven and you won’t have to pay.  You can’t be in default or you won’t be able to do this program.

For program details and more information, go to: https://studentaid.gov/pslf/

If you can’t make a payment at all, ask for a “deferral.” A deferral means you will not have to make any payments and no interest will be added on the loan for the length of the deferral. A deferral can last up to 3 years. You may be able to get a deferral if you:

• lose your job,
• have health problems,
• take time off work to care for your preschool children,
• are on active military duty, or
• have some other form of hardship, such as low earnings

You can only get a deferral if your loan is not in default when you ask for it and you have not already used up your 3 years of deferral time.

If you are temporarily disabled or having financial hardship you can ask for a “forbearance.” A forbearance means the lender agrees to let you stop making payments for a while or make lower payments. The lender may give you a forbearance even though you have already used up your 3 years of deferral. But interest is added to the principal of your loan during the length of the forbearance.

The difference between a deferral and a forbearance is that interest continues to grow with a forbearance.

The lender may declare the loan in default if you fail to make the required payments for at least 9 months.

There are serious consequences of default. They include

• You lose your right to a deferral.
   
• The lender can sue you, get a judgment against you, and seize any of your income or property that is not exempt under state law.
   
• Without suing you, the U.S. Department of Education can take your federal income tax refunds including the Earned Income Tax Credit (EITC). 
   
• Without suing you, the U.S. Department of Education or State Guarantee agency can garnish your wages if you earn more than 30 times the federal minimum wage. 
   
• If you get more than $750 per month of Social Security or Veterans Administration benefits, the U.S. Department of Education can take 15% of your check, or the amount by which your check is more than $750, whichever is less. If you get Supplemental Security Income (SSI), or your Social Security benefits are not more than $750 per month, the Department of Education can’t take any part of your benefits.
   
• If you want to go back to school, you can’t get any new financial aid, either loans or grants.

There are a few ways to get your loan out of default.

• You can “rehabilitate” your loan.  To do this, you and your lender decide on a monthly payment amount that is reasonable and that you can handle.  You need to consider things like income and expenses.  You have to make 9 monthly payments in a row to get out of default.
   
• If you have more than one loan, think about a consolidation loan.  These are offered by the U.S. Department of Education.  The new loan pays off your old loans.  If your lender has not gotten a judgment or an order of wage garnishment against you, you could qualify for a consolidation loan.  Some reasons for taking out a consolidation loan are:
   
  • You would no longer be in default, so you would qualify for deferral, even if you had already had a deferral on your old loan.
     
  • A Direct Consolidation loan can be repaid under an “income contingent” repayment plan.  In other words, the lender would have to accept as a monthly payment an amount that is affordable to you based on your actual income. 
    
    To ask about a Direct Consolidation loan, call the Federal Student Aid Information Center at 1-800-433-3243. 
     
• If your main concern is to get more loans and grants to go back to school, you might be able to make an agreement with the lender to lower your payments to something you can afford. If you make 6 payments in a row you are eligible for new educational loans and grants. 
  
  Note: But your loan is still in default for other purposes, like collection. The lender could still take collection actions, like taking your tax refunds and garnishing your wages.
   
• Even if you took your loan out before July 1993, you may be able to reinstate it. This means get it out of default, renew your eligibility for deferrals, stop collection action. You may be able to do this if you make 12 payments in a row of an amount you agree to with your lender. 
   

You can ask for a forbearance even if you are in default. A lender may, and sometimes has to, give you a forbearance. A forbearance does not take your loan out of default or renew your eligibility for new student loans or grants, but it stops collection action.

If debt collectors are collecting on student loans, they can’t harass you and they have to follow the Fair Debt Collection laws. See Chapter 3 for more info.

1.  Bankruptcy

The general rule is that student loans can’t be discharged in bankruptcy. Discharge means you do not have to pay the loan back. But if a judge decides the student loan will cause you “undue hardship” if it is not discharged, they can order the loan discharged.  

“Undue hardship” is a hard thing to prove. You have to show that you have no income or resources to make any significant payments on your student loans, and that you won’t be much better off in the future. It is easier to do this if you are disabled.

If the loan is discharged, then you no longer have to pay it. The lender can’t take any further collection action, and you would be eligible for new student loans and grants.

2.  Forgiving the Loan 

Sometimes the lender must give up trying to collect on your loan. This is called “forgiving” the loan.  The lender has to forgive your loan under certain circumstances:

• Closed school
  You got a loan after January 1, 1986, but could not complete your education program because the school closed.
   
• Inability to benefit
  Your school let you enroll in a program that they knew you could not benefit from.  For example, if you did not have a high school diploma at the time you enrolled, and the degree/license or certificate you were working towards required a high school degree.
   
• Your school forged your signature on the loan application.
   
• You are totally and permanently disabled. 
   

The Department of Education has forms to use if you want to apply to forgive your loan. Download them from the website at https://studentaid.gov/manage-loans/forgiveness-cancellation

Give as much information and documentation as you can to support your claim.  Return the completed form, together with supporting documents, to your lender or their collection agent.

If you have questions about student loans, repayment plans or need more information, go to the Department of Education website at https://studentaid.gov/

Or call the Federal Student Aid Information Center (FSAIC) at 1-800-4-FED-AID (1-800-433-3243), (TTY) 1-800-730-8913. Or visit the website at https://www.usa.gov/federal-agencies/federal-student-aid-information-center

Most student loans are “serviced” by a company other than the lender. These companies collect payments, answer borrower questions, and do other tasks to maintain a loan. 

Minnesota passed a “Student Loan Borrower Bill of Rights.”  For example, it is against the law to mislead you or deceive you.  Servicers have to check your eligibility for an income-based repayment program. There are more rights under this law. To read the whole “Student Loan Borrower Bill of Rights,” go to https://mn.gov/commerce/money/consumer/student-loans/bill-of-rights.jsp

Student loan servicers in Minnesota have to be licensed by the Department of Commerce.   If you have a complaint against your servicer, you should contact the department by email at consumer.protection@state.mn.us or by phone at 651-539-1600 or 1-800-657-3602.  You can file a complaint online at https://mn.gov/commerce/consumer/file-a-complaint/. The department can make the servicer give you money back (called “restitution”) for wrongdoing. 

You can also make a complaint to the federal Student Loan Ombudsman at 1-800-433-3243 or online at https://studentaid.gov/feedback-ombudsman#how-contact

If you don’t know who your student loan servicer is, you can call 1-800-433-3243 or look it up online at https://studentaid.gov/manage-loans/repayment/servicers.

Minnesota passed a law called the “Coerced Debt Law” that could help a survivor of domestic violence if an abusive partner stole the survivor’s identity to take out credit or otherwise used force, threats, or intimidation to make the survivor take out unwanted credit.

The law makes it illegal to force a survivor of domestic violence to take out debt they didn’t willingly ask for.  If a survivor has this kind of debt, they can get a court to wipe out that debt.  If the survivor gives evidence that the debt was “coerced,” the court can rule that

• The survivor does not owe the debt
• Any court order (“a judgment”) saying the survivor owes the debt is thrown out
• Any existing court case the debt collector has against the survivor for the debt is dismissed.

Before going to court, a survivor of violence has to first tell the debt collector that the debt was “coerced” and include one or more of these documents 

• a police report
• an Identity Theft Report to the Federal Trade Commission
• a sworn certification from a professional counselor or health professional saying the debt was coerced

After receiving the notice, the debt collector has to tell the survivor if they will stop or not stop trying to collect the debt.

Refinancing your debt (paying off your loan by taking out a new one) when you can’t afford your current monthly payments can seem like a good idea but might not be in your best interests. Here are some things to think about when refinancing seems like a way out of your debt situation.

• If you have any doubts, don’t refinance. Refinancing almost always costs money. It may be up-front costs, or it may be over the term of the new repayment schedule. Ask yourself if the payments you make now, or the new refinanced payments are better for you. Add up the costs. What is the new grand total that you pay over the lifetime of the loan? 
   
• How much longer do you have to make payments? 
   
• How much is your new interest rate? Does it increase or decrease the total interest you pay over the lifetime of your loan? 

“Secured loan” means that the debt collector can take a promised piece of property (called “collateral”) if you don’t pay. The debt collector does not need to sue you first – they can usually take the collateral as soon as you are late. These are usually home mortgages and car loans. 

“Unsecured loan” means that there is no collateral. If you don’t pay, then the debt collector has to sue you in court to take anything.

It is usually a bad idea to borrow money from a secured loan to pay for an unsecured loan. The reason this is bad is because your exemptions may protect your property from unsecured debt collectors like credit card companies. But these exemptions do not stop secured debt collectors. 

For example: you borrow money from your house (called Home Equity Loans) to pay your credit card bill. Even though the house was safe from the credit card company, you could lose your house if you don’t pay on the Home Equity Loan.

• What will your new interest rate be?
• What property that you own are you putting up as collateral for the loan?
• How long and for how many years and/or months will you be paying on the new refinanced debt?
• What will the total of all your monthly payments be when you get done paying the debt?
• Are there special rules (terms) about your payments during the time you have the loan?
• Will the amount change?
• What are the up-front closing costs?
• Are there any continuing closing costs?
• When can your new lender demand you pay the total amount owed before the end of the contract?

Make sure you get independent legal or financial advice from a professional before you sign. You need to choose the person to help you. Don’t just use someone the lender suggests. Ask the person to look at the paperwork and give you advice before you sign.

If the loan is a home equity loan or credit line, then you have 3 days to cancel the loan after you sign. You can cancel for any reason by letting the lender know in writing. Remember that you are putting your home up as collateral with this kind of loan (the lender can take it from you if you don’t pay).

Do you know the bank, loan business, or finance agency you are dealing with? Were you introduced to them when someone came to your door? 

There are many people out there looking to scam you. They take your money today and leave tomorrow by selling your loan to another financing company that may not work with you. You could lose your home. 

Here are more signs of a scam to look out for

• lenders that aggressively advertise
   
• lenders that offer to lend you more money than the collateral is worth
   
• lenders that promote the tax deductibility of your loan (If they do, make sure they explain when and why your loan may not be tax deductible in language you can understand.)
   
• offers to help you get a loan modification that charge you a fee (If you choose to use someone to help you get a loan modification, you do not have to pay any fees until they provide the service they promise.)

If you are in foreclosure and would like to adjust your loan or lower or extend your payments, the Minnesota Homeownership Center operates a statewide foreclosure prevention program. For help, call the Homeownership Center at 651-659-9336 or 866-462-6466 or visit their website at https://www.hocmn.org/

They might charge you fees that add up. For example, they may say you have to pay new loan closing costs and other fees as a condition of getting the loan. They may charge you prepayment penalties when they pay off your old loan. They may make you pay a higher interest rate on your new loan. They may also make you add more property to the deal to get your new debt loan.

Bankruptcy is a legal proceeding (action) in federal court. A person with a lot of debts can get rid of those debts (“discharge” them) or get a new re-payment plan (“re-structure the debt”) if it is approved by the court. The two primary types of consumer (individual) bankruptcies are called Chapter 7 and Chapter 13.

Chapter 7 bankruptcies are also known as liquidation bankruptcies. You can get rid of your responsibility for all or most of your debts by giving up your non-exempt property to be sold. This does not usually include your home, car or furniture. The money is then used to pay off your debt collector. 

In this type of bankruptcy, the debt collector only gets back a small part of the original amount they were owed. If the bankruptcy is approved, you are no longer legally required to repay the debts. You only have to pay if you “re-affirm” specific debts after the bankruptcy is granted. Reaffirming a debt means you agree to pay that specific debt. 

Chapter 13 bankruptcies let you re-organize your debts and assets. A “Chapter 13 plan” is created so you can pay off your debts over a span of 3 to 5 years. The bankruptcy court has to approve the plan. Debt collectors don’t usually get all of the money you owe them, but they get some of it. The idea is that it is better to get some money back than to get none.

In this type of bankruptcy you can sometimes keep some non-exempt property. But property that was listed as a “security interest” or collateral is different. You may have to work out a new agreement or contract with the company listing the property as a security interest. You can’t always keep all your property in this type of bankruptcy. 

• Gives you a fresh start on managing your finances and meeting your financial responsibilities.
   
• Lets you keep your home or car by stopping foreclosures, cancellations of contracts for deed and repossession of vehicles.
   
• Stops collection activity and other legal actions for a while, like
  • Garnishments and attachments that are already started
  • Lawsuits for foreclosure, eviction, cancellations for contracts for deed
  • Lawsuits to enforce collection of other obligations
  • Utility terminations          
  • Collection of judgments against you.
     

Stopping these activities is only temporary, but you might be able to work out a new payment plan or make other arrangements to end collection action altogether. 

• Bankruptcy can mean that you have to give up property that is not exempt or not protected for some other reason.  For example, your house or car could be protected because they are subject to a mortgage, contract for deed or security interest. 
   
• Bankruptcy can mean you have a hard time getting credit in the future for things you need because a bankruptcy stays on your credit history for 10 years. 
  
  Some local businesses might not care about your credit report because of your standing in the community. But a bankruptcy on your credit report stops many lenders from approving credit.
   
• Bankruptcy may have a bad impact on your reputation if it becomes known publicly.  This may be a reason for you to “re-affirm” debts owed to lenders in your community.  
   
• Businesses might discriminate against you because you filed for bankruptcy protection. For example, they might refuse to hire you or give you a loan. 

You do have some protections like

• An employer can’t fire you because you filed for bankruptcy.
   
• A utility company can’t deny or refuse services because you filed for bankruptcy.
   
• Medical providers can’t refuse to give you emergency medical services because you filed for bankruptcy. But medical providers CAN refuse routine services to you if you have a bankruptcy in the past, unless you have proof of present ability to pay. 

If you can show that someone denied services,  employment or housing to you because you filed for bankruptcy, you could have a reason to sue in court and get the denial overturned.

To file for bankruptcy, you almost always need the help of a lawyer. Many lawyers charge a set fee plus court filing costs for specific types of bankruptcy help. Some lawyers let you set up payment schedules for their fees. Others want the full amount up front. 

If you have questions about bankruptcy meet with a lawyer who practices bankruptcy law to discuss your rights, your options and the required steps.

If you would like legal advice about your debts or a possible bankruptcy, call a lawyer or your local Legal Services office at 1 (877) 696-6529.  

Bankruptcy is NOT the only way to deal with your debt. You have options. Bankruptcy may not be necessary or make sense if

• you have no income, savings, or other property or assets which can be taken from you to pay off your debts
• you want to keep property that can be taken to pay off your debts
• you have only a few debts
• you have a strong defense as to why you don’t owe the debt
• you have a way to make payments on your debt or
• the only reason you want to file for bankruptcy is because you want to stop being bothered by debt collectors. There are ways to stop this other than bankruptcy. 

Note: If the debts you are worried about are backed (secured) by your home or car or other important property and your income isn’t enough to pay both current and past due debts, bankruptcy does not help you (see Chapter 10 for more information). 

If any of these factors apply to you, there are other things you can do instead of bankruptcy.

Legitimate credit counseling agencies can help you figure out the best way to deal with your debt. Legitimate agencies are here to help people, not scam them. The best way to be sure that the agency is legitimate is to use a nonprofit service that is either free or low-cost. 

Good credit counselors help you review your situation, give you options, and advise you on the best ways to get back on your financial feet. They also may offer free or low-cost financial training so you can avoid credit problems in the future. 

Make sure that the agency you use is “accredited.” This means that they are given a seal of approval that they meet high standards. Also make sure that the counselors are “Certified Consumer Credit Counselors.” These counselors have to pass tests to make sure they are good counselors.  You can find out if an agency is accredited by checking with the National Foundation for Credit Counseling at https://www.nfcc.org/

If you would like help with budgeting or with paying your debts, you should call Family Means at 651-439-4840 or 1-800-327-3203 or www.familymeans.org. They may be able to help you set up a repayment plan to take care of your debts.

See Chapter 1 for more information on managing your debts and credit counseling options.

Being in debt can be very stressful. That stress can make it easy for people to fall for scams. There are many dishonest “businesses” that make you think they want to help you. In fact, the “business” is just a scam to get your money. Don’t fall into a trap that makes your debt problems worse.

Here are some things to look out for and avoid.

• DO NOT sign up with any business that says it helps you
  • get out of debt
  • fix your credit
  • get debt collectors to leave you alone

Get advice from a legitimate nonprofit credit counseling agency. Make sure the agency is “accredited” (given a seal of approval that they meet high standards) and their counselors are “certified” (they had to pass tests to make sure they are good counselors). See Chapter 1 for more information on managing your debts and credit counseling options.

Be careful of companies offering “debt management” services or plans. 

The main purpose of “debt management” is to help you fully repay all that you owe. These are plans where the company acts as a go-between with your debt collectors.  The company says they set up a repayment plan with each of your debt collectors. Then they take a lump sum payment from you each month and make the monthly payment to each of the debt collectors. But the lump sum you pay includes fees for the debt management company. 

If you end up with one of these companies, make sure the lump sum you pay includes the full amount owed to your debt collectors in addition to the fees. Ask the debt management company to tell you exactly where all the money you pay goes. 

Debt management service companies HAVE TO have a license from the Minnesota Department of Commerce. They HAVE TO follow strict Minnesota laws. 

For example, BEFORE you sign a contract with them, they have to tell you which of your debt collectors has agreed to be part of the plan and which refused to participate. They can’t charge more than a one-time $50 “origination” fee and then no more than $75 per month “maintenance” fee. 

Do not sign anything until you check to see if the service has a current license. You can check with the Minnesota Department of Commerce to see if the company is licensed by calling 651-539-1600 or 800-657-3602 or going to their website at https://mn.gov/commerce/licensing/license-lookup/

Be very careful about companies offering “debt settlement” services. 

The main purpose of “debt settlement” is to help you get part of your debt “forgiven” so the total you have to pay is less than what you owe. These companies say they lower your debts by getting debt collectors to “forgive” a large part of what you owe – whether it is on credit card debt, medical debt, or tax debt. 

Do not sign anything until you check to see if the service has a current license. You can check with the Minnesota Department of Commerce to see if the company is licensed by calling 651-539-1600 or 800-657-3602 or going to their website at https://mn.gov/commerce/licensing/license-lookup/

IMPORTANT NOTE: Debt settlement companies CAN’T take any money up-front. They can ask you to pay fees only after they have delivered the services they promised.

Debt settlement companies HAVE TO have a license from the Department of Commerce. They HAVE TO follow very strong Minnesota laws that protect consumers. 

For example, before you sign a contract, they have to make sure the plan is right for your situation. They have to tell you they don’t guarantee success, and that you can still be contacted and sued by debt collectors. They also have to tell you that interest and fees keep adding up during the time you are in the debt settlement plan.