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Court: Debt collectors can't mislead people as to their rights

The economic recession has created financial stress on countless people in Ohio and the rest of the nation. Some of the people hit hardest by the recession were recent graduates, who, after accumulating loads of student loans, found that they could not secure jobs that seemed so promising when they entered school.

Many Americans turn to personal bankruptcy when they find themselves drowning in debt, but there is a widely-held belief that student loans cannot be wiped out like other forms of debt stemming from medical bills or credit cards. However, as the U.S. Court of Appeals for the Second Circuit recently pointed out, this isn't entirely true.

The case involved a New York woman who received a letter in 2008 from a Massachusetts-based debt collection agency that was seeking collection of an unpaid student loan debt. According to the court's decision, the letter stated: read: "Your account is NOT eligible for bankruptcy discharge and must be resolved."

But that statement wasn't true, the court held, finding that the debt-collection agency was being "false, deceptive or misleading" in the letter. The court explained that while it is more difficult to have student loans cleared in bankruptcy proceedings -- for example, the debtor has to show that repaying the loan would mean he or she wouldn't be able to maintain a "minimal" standard of living -- it is possible.

"You can't mislead people as to their legal rights," the woman's attorney said after the court decision was handed down. "Debt collectors have been going around telling people, 'You can't get a discharge, this is a student loan' ... It's difficult but it's not impossible."

The woman and her lawyer are suing the debt-collection agency over the letter. This decision gives them the green light to continue. They say 181 people in New York were sent the same letter in 2008, and they will attempt to seek class-action status to include all those individuals in the lawsuit.

Source: Wall Street Journal, "Second Circuit Breathes Life into Lawsuit against Debt Collector," Dan Strumph, Aug. 30, 2012

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