Credit Laws

Will Chapter 13 bankruptcy restart statute of limitations for private student loan

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QUESTION: This might be complicated but hopefully I explained it correctly. I have a private student loan that became due in 2010. I defaulted on them in 2010. The student loan company sent it to collections in 2013. They contacted me throughout that time and I let them know I couldn’t pay. Fast forward to 2016 and I had a conversation with the student loan company about the debt. The student loan company ask me how much can I pay and I said $50. However, I am not committing to anything until the interest and fees are taken off. The representative told me that she will have to contact the creditor to see how that works and cannot promise me anything.

Later in 2016, I get a law suit from the creditor. I had filed for bankruptcy in 2014 and it got discharged in 3 months. The default started on 2/5/2016 and I am now being sued on 8/25/2016 according to the summons. Has the statute of limitations passed and does the bankruptcy trustee paying all my creditors restart the statute of limitations. Also do you Happen to know the law numbers like KSA 60-520 and etc., that proves that the state of limitations has passed for the creditor to sue.

ANSWER: Disclosure: I am not a lawyer and this should not be considered legal advice. You should seek appropriate counsel for your situation.

What I can suggest is that you do not ignore a lawsuit. Even if the statute of limitations has passed, you must answer the lawsuit to assert your defense that the debt is time-barred. Without a response to the lawsuit the creditor can win by default. You can google “Kansas statute of limitations on a promissory note” to get the proper legal citations.

Under your Chapter 13 reorganization, you may still owe the remainder of the student loan if the planned payments did not cover the entire student loan debt. You may have an option of discharging the remainder of the loan based on undue hardship but you need to discuss your options with an attorney.

Generally, you can reset the clock on the statute of limitations if you sign a new agreement to pay the debt, make a payment after the statute of limitations has run, or acknowledge your liability on the debt in some other way (i.e. stating you can pay $50).  The specifics regarding when you revive a debt or reset the clock depends your state’s laws.

But here is what I think may be happening in your situation. I don’t believe the bankruptcy trustee paying your creditors restarted the statute of limitations. What happens when you file for bankruptcy is an “automatic stay” goes into effect where your creditors cannot sue you. But, at the same time filing bankruptcy tolls (suspended, put on hold, time clock stops) the statute of limitations.

That means if the statute of limitations has not expired on a debt before the date of filing bankruptcy, you end up extending the time for a creditor to sue you once the automatic stay is no longer enforce. Basically, the statute of limitations picks up where it left off after your case is dismissed or discharged.

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