Does that make sense?

May 7, 2009 1:08 PM

Debtfilter: Employer provides signing bonus structured as forgivable loan (forgiven if employee stays with firm long enough). Employee leaves soon after, and employer seeks to collect on loan. Employee is now a broke grad student, so employer offers to defer collection of loan until grad school is complete. Question: If length of time in grad school exceeds state statute of limitations on original loan, does this mean the loan will discharge itself before it can be collected?

I know you're not my lawyer.

posted by anonymous to work & money (16 comments total)

Legal or not, the employer is being nice, an the money is owed. Pay it.

The statute of limitations applies to how long it can be before they sue you - you agreed to pay the debt after grad school, the clock starts ticking when it's late, not when the debt is taken out.

It also varies widely by state.

I am not a lawyer.
posted by bensherman at 1:11 PM on May 7 [6 favorites]

Question: If length of time in grad school exceeds state statute of limitations on original loan, does this mean the loan will discharge itself before it can be collected?

What are the written terms? It's possible to defer student loans, for example, if you're going to grad school, while still being obligated to repay those loans with interest, once you graduate.
posted by Blazecock Pileon at 1:20 PM on May 7

I am not your lawyer. We don't know what jurisdiction you're in, but loans themselves do not have "statutes of limitations." I suppose it's possible that if a creditor failed to demand payment on a loan for some period of time and then tried to sue to collect the money owed, s/he might be blocked by a statute of limitations if s/he waited too long.

But based on the facts presented, nothing like that has happened here. The creditor is apparently being kind by deferring loan payments for some period of time. The idea that (on these facts alone) someone would try to sneak out of repayment after a creditor has been so generous, based on a flawed misunderstanding of that creditor's generosity, is pretty appalling. I'm aware that the OP did not ask about the morality of such a situation, but don't imagine for a second that appearances wouldn't be relevant if this did proceed to court.
posted by Conrad Cornelius o'Donald o'Dell at 1:22 PM on May 7 [2 favorites]

Wait, the employer offered a "signing bonus," yet expected you to pay it back? Sounds shady to me.
posted by hifiparasol at 2:28 PM on May 7

Wait, the employer offered a "signing bonus," yet expected you to pay it back? Sounds shady to me.

Some employers will offer a signing bonus, contingent on continued employment for a certain period of time -- say, 12 months. If the employee leaves before that time period expires, he or she may be liable to repay the employer a prorated amount of the bonus. As far as I know this is a fairly standard practice.
posted by Blazecock Pileon at 2:36 PM on May 7

Well, no, the employer offered a signing bonus, expecting the employee in question to stay with the company for a certain amount of time. I don't know how common this is, but my girlfriend's employer required her to work there for a year in order to keep her bonus.
posted by The Pusher Robot at 2:37 PM on May 7

Dangit, I even previewed.
posted by The Pusher Robot at 2:37 PM on May 7

Sorry, that should've been more clear. I guess what I'm not understanding is how an employer can offer any kind of payment -- and as far as I know, signing bonuses are generally considered a form of payment -- and then demand that money back. It sounds to me a lot like those old "company store" mining companies you hear about, where you end up owing the company more than what they pay you, because they charged you for your own pith helmet. Or those shady agencies that promise jobs in the modeling industry with just $1000 down.

It'd be different if they demanded you stay with the company for a given period of time as a condition of accepting the bonus, then sued you for quitting too soon. But that doesn't sound like what's happening here. And it sounds more complex than a simple creditor/borrower relationship.
posted by hifiparasol at 2:38 PM on May 7

First of all, this sounds like a first-year law school contracts hypothetical, and if I'm right, shame on you. We need a new category for DoYourOwnDamnHomeworkFilter.

Second of all, no. The two parties have agreed to a contractual term where the loan is due at a specified time in the future. It doesn't matter how long that time in the future is, the statute of limitations will not begin to toll until that time is passed. So if our student graduates from high school, doesn't pay back his employer, and the former employer doesn't do anything about it for another five years, then you might have a statute of limitations issue, but not until then.

Statutes of limitations do not generally begin to toll until after the creditor or potential plaintiff has started to neglect their rights. Saying "You have to pay me starting at time y" is not neglecting your rights, it's simply contracting for different repayment terms.

There isn't a consideration problem here either, because presumably there is interest on the loan which will continue to accrue during the forbearance period.

There might be a statute of frauds problem because of the length of the contract, but it's been too long since I took contracts for me to be clear on that.

On the outside shot that this isn't for a law school final, no, this does not constitue legal advice.
posted by valkyryn at 2:42 PM on May 7 [1 favorite]

Yeah, I clicked the "Post" button instead of "Preview," myself. Thanks for the explanation.

I don't think the OP is asking "Can I get out of paying this loan?" I think s/he's asking "How do I go about dealing with this loan if the statute of limitations expires before I'm done school?"

You should certainly think about future employers finding out about this -- it's not the sort of thing that looks good. But on the other hand, I know life can be tough (in terms of finding a job) when leaving grad school, and once you start paying any loan back -- even if it's past the statute limit -- you pretty much oblige yourself to keep paying it back, so if you do have a rough financial situation and you feel you've used up the creditor's goodwill, what do you do?

I'd maintain regular contact so they know you're serious about paying it back. And just because you're deferring payments doesn't mean you can't pay a little bit of the loan off whenever you have some extra money. Creditors can be very forgiving if you're making a good faith effort instead of simply appearing to dodge the loan.
posted by hifiparasol at 2:45 PM on May 7

valkyryn may be on to something there: It is law school exam time, after all.

If this is a legitimate question, then go get a lawyer who can give you real legal advice.

If you are a law student asking us to help you with an exam answer in any way, then shame on you. I cannot even tell you how mad it makes me to think that you might be using AskMeFi to get you through law school exams or homework -- let alone that it appears to be something as elemetary as contracts.
posted by The World Famous at 2:51 PM on May 7

It is extremely common for a company to offer a signing bonus with the stipulation that if the employee must stay X months at the company, or else pay the bonus back (usually 12, but not always). Those who are surprised by this aren't usually working in the kind of gigs that involve significant bonuses. It's not uncommon to see the same sort of arrangement when a company covers relocation costs.

As for your question, it depends on what the contract says. Any company that would use a complicated structure (a forgivable loan, rather than a simple clawback clause in your employment agreement/offer?), probably has themselves protected (i.e. "this loan is forgiven on 12/31/2010, provided Employee is still employed full-time by Company")

In practice, though, yes, you owe the money, and no, the loan will not just expire. When you give notice to your employer, they generally provide you with a final paycheck -- it is extremely likely that a company would simply apply the amount of that check to your debt, and then expect to get the rest of it immediately (or, under the terms of the employment agreement, generally "due in full upon voluntary termination of employment".)

If the employer said (presumably in writing) "Since you quit, we won't be forgiving the loan, but we'll let you pay it back when you're done with grad school", they have arguably modified the contract.

If this is homework, shame on you. Do your own work.

If this is not homework, shame on you. You owe the money. Pay it back. Don't screw things up for future recipients of signing bonuses.
posted by toxic at 4:36 PM on May 7

I think s/he's asking "How do I go about dealing with this loan if the statute of limitations expires before I'm done school?"

What do you mean? As valkyryn says, "Statutes of limitations do not generally begin to toll until after the creditor or potential plaintiff has started to neglect their rights." According to these facts, the creditor has done no such thing, so it's just not an issue.
posted by Conrad Cornelius o'Donald o'Dell at 5:36 PM on May 7

[This is a followup from the asker.]

Geez, you folks need to calm down. I have no intention of looking a gift horse in the mouth, and fully intend to pay back the money owed. I was just curious, as I'd been reading about timelines on debt at personal finance and/or improve your credit sites. It seemed like an interesting conundrum (though apparently an illusory one)

I'm NOT a law student looking for exam answers, though interestingly I will be one soon (that's the aforementioned grad school)

Thanks for all the answers!

posted by cortex at 5:38 PM on May 7

valkyryn has it.

The statute of limitations for any claim does not begin to run until the claim accrues. A claim for breach of contract accrues when there is a breach - a failure to perform as required.

If you enter into a 30-year contract with a bank to pay a certain amount of money each month, in consideration of a loan of $x allowing you to buy a house, and you fail to make a payment in year 27, that is the date of accrual and the date on which the SOL starts to run for that breach. It does not matter that 27 years have passed in the interim.
posted by megatherium at 6:36 PM on May 7

so employer offers to defer collection of loan until grad school is complete

If the company is not stupid, when they agree to defer collection of the debt they will get you to re-affirm or acknowledge that you owe them money, and basically reset any ticking clocks that may exist on it.

Exactly what form this reaffirmation might take would depend on the jurisdiction, but requiring reaffirmation as a condition of debt restructuring seemed S.O.P. in my work with the consumer credit industry. Sometimes this acknowledgment takes the form of requiring the customer to make some sort of token payment, other times it's just paperwork. But the company would be absolute fools to not do it, if they have any way to, as part of deferring collection.

It might be (and I really have no idea here, I'm just conjecturing) that the deferment agreement itself essentially functions as a reaffirmation/acknowledgment of debt on your part; I would be extremely careful in simply assuming that the debt will be discharged based on the earliest date, since a court might look at the chain of events and see good faith on the company's part and bad faith on yours. I wouldn't count on getting the debt discharged based on what is essentially a technicality, in the face of what might seem very much like bad-faith behavior (getting an extension of the debt long enough to have it discharged and thus never planning on paying it at all).

It has been my experience in my (admittedly and thankfully) limited interactions with the civil court system that judges really hate feeling used for some ill end, and can be amazingly creative in their abilities to make the person they see as acting in bad faith pay. Regardless of what you think the law is, I would tread carefully.
posted by Kadin2048 at 11:26 PM on May 7