Consolidation loans for people with bad credit?
February 24, 2016 9:29 AM   Subscribe

I have some private student loans that I didn't pay for a long time (because I didn't have a job). Because of this, my credit is terrible. I would like to pay the loans so the debt collector leaves me and my family alone, but I can't find a consolidation company that will lend to me because of said credit, even though I do have a great job now and over a year of on-time payment history for my federal student loans. My credit is going up, but not fast enough, I guess.

Eventually the private loan company took out a judgment against me. I hate these harassing phone calls from this terrible lawyer/debt collector and I want them to stop. They are also harassing my co-signers who are family members. I just want to make monthly payments, now that I can, but the debt collectors are insisting they need a bunch of money RIGHT NOW from some or all of us and we just can't put down a lump sum. Unless we could consolidate...

Is there a consolidation company that will lend to people with bad credit? I keep getting turned down. The amount of the private loans is around $21k including interest and the freaking $6k in attorney's fees. There is no one I can ask to co-sign.

What else can I do to get these people to leave me and especially my family alone? Do I have any other options?
posted by woodvine to Work & Money (15 answers total) 5 users marked this as a favorite
There are laws to protect you, but debt collectors are kind of famous for ignoring them. For instance, you can write them and tell them not to contact you again (you would still owe the money), and they would legally have to stop phoning you, but that doesn't mean they would actually do it. Still, it's crucial that you educate yourself about your rights. Basics are here, but I'd suggest getting some books about debt from the library to find out more.

You certainly have the right to refuse to speak to them though. When they say you have to pay a large amount right now, you can say, "Sorry, I can't do that" and hang up. You owe money, not your life. They count on you being afraid of them and believing their threats. Their purpose is to scare you.

There are companies that will be perfectly happy to take advantage of your fear and your lack of knowledge and get you into an even bigger mess. That's why it's essential that you educate yourself. Consumer Credit Counseling agencies can be helpful, but you have to be careful there because many of them get paid by credit card companies, and so they won't advise bankruptcy even when it's your best option.
posted by FencingGal at 9:43 AM on February 24, 2016 [12 favorites]

Would a loan from a credit union be an option for you?
posted by essexjan at 9:56 AM on February 24, 2016

Note that this is student loan debt, so it can't be discharged in bankruptcy.

I am open to basically all options. Would a credit union give me a loan? Which one?
posted by woodvine at 10:20 AM on February 24, 2016

Eventually the private loan company took out a judgment against me.

Was this a default judgment or did you show up in court on the court date? If it was a default judgment (i.e. they won b/c you weren't there), you may be able to get it vacated (sometimes by filing what's called an Order to Show Cause, but it depends on the state) -- search "vacate a default judgment [state]" (without quotes) to see the procedure in your state. Some states, like NY, have a very comprehensive self-help website for vacating a default judgment on debt. Vacating the judgment doesn't mean the debt goes away, but you would get to have your day in court where they have to prove that they own the debt, they own it in the amount specified, and you are legally liable for it. You could also contest whether the attorneys' fees are reasonable/allowable under your loan agreement. You can also sometimes ask the court to facilitate a reasonable payment plan agreement (even if you can't vacate the judgment).

Consider consulting with an attorney, it may not be as expensive as you think.
posted by melissasaurus at 11:11 AM on February 24, 2016 [2 favorites]

You could try getting a loan through Lending Club or Prosper.
posted by jabes at 11:12 AM on February 24, 2016

Seconding that you ask them to stop calling. The FTC has info here on what is and is not legal for collectors. Also, the Consumer Financial Protection Bureau has this page about student debt with answers about what to do if you are in default.

If you want to make payments, they would probably take them but continue asking for the remaining sum. I would check with a lawyer first to make sure you wouldn't be giving up any of your rights if you just started sending payments.
posted by soelo at 11:26 AM on February 24, 2016 [1 favorite]

For a credit union, you'd need to search for one in your area that you're eligible to join. Credit unions vary in eligibility requirements. Sometimes you need to work for specific companies. Sometimes you need to live in a certain geographic area. You could ask your HR people if your employer has a connection with a credit union. That wouldn't necessarily have anything to do with needing a loan (in case you're concerned about your employer knowing about your debt). There are lots of advantages to belonging to a credit union.
posted by FencingGal at 11:32 AM on February 24, 2016

Get a copy of the book "How to get out of debt, stay out of debt and live prosperously".

From what you describe, I see no reason why you must come up with a lump sum. I did have to come up with a lump sum before resuming payments, but I had agreed to a settlement and was in violation of it. If necessary, lawyer up.

I have been able to talk with lawyers trying to get money out of me and get them to cut me some slack, whatever was within their authority, and get the payments down to something reasonable.

I looked into Prosper. I never borrowed money that way. I don't think that is a great idea. I would sooner go with something like Gofundme and try to actually fund raise. I am saying this as someone who recently took out my first ever PayDay loan, the loans with the terrible rep for charging up to 800% effective APR.

If you have a vehicle, a title loan might get you a lump sum, if you absolutely must come up with a lump sum. But, first, try to dispute that.

Also, there are cases where student loans can be discharged in bankruptcy. You likely don't qualify. I have a link to info on that somewhere. I can try to dig that up later today when I am on a better computer than my tablet.
posted by Michele in California at 12:02 PM on February 24, 2016

I would be extremely surprised if a credit union or bank would allow you to transfer this debt. If it's still student loan debt, a credit union or bank won't touch it unless it's a consolidation loan, and maybe not then with the loan's payment history.

However, it isn't clear whether this is still student loan debt, or if the loan holder sold that debt to a collection agency, and it's now regular, dischargeable debt. If it's the latter, bankruptcy might be a tool you can use to negotiate with the debt collector. I DO NOT recommend bankruptcy in your situation, as $27,000 is relatively manageable.

I know some folks in heavy private student loan debt who have been through (three?) private loan consolidation companies. They have a bankruptcy, but the loans themselves have never been seriously late or in default. Good income, five year old bankruptcy, plenty of good credit since then, with much more debt than you, and those folks have been turned down for consolidation repeatedly.

Not sure if you've tried negotiating with the collection company directly, or if you're trying to negotiate with callers. If you haven't already, call them directly, escalate and negotiate. Tell them that they're flat out never going to get a lump sum, but that you can pay and you will pay if they work with you on a reasonable payment plan, and they stop calling. For them, it comes down to "Do you want your money or not?" especially if this debt is now dischargeable.

Edit - Student loans effectively cannot be discharged in bankruptcy. You need a permanent, lifelong disability, and even that's sometimes not enough to do it quickly.
posted by cnc at 12:02 PM on February 24, 2016

As said upthread, very important to clarify what "took out a judgment against me" means.

Were you ever even served with a complaint (the document that starts a lawsuit)? If not, any default judgment obtained as a result has no force and you are entitled to have it vacated. Were you served but didn't show up? You can try to get the judgment vacated and at least make them prove their case. Judges are usually fairly sympathetic to pro se defendants in this situation and often vacate default judgments against them. The collector can still re-file and start over, but every additional hurdle you make them climb increases the chance they will give up or at least offer a more reasonable settlement. If you live in NY, there is actually a limited-representation clinic at the courthouse on certain weeknight evenings where an attorney can help guide you through filing your own paperwork to get the judgment vacated and then take the basic steps in a lawsuit (though they won't represent you in court). Did you show up and lose (or, after getting a current judgment vacated, you lose again)? Then it gets to be tougher.

There is ZERO reason to give debt collectors a lump sum, unless they are willing to enter into a signed settlement agreement that it will satisfy the entire debt. Their goal is to get the maximum amount of money out of you in every encounter. Giving them a lump sum will not stop them from coming back for more or from hassling you. They will never, ever leave you alone until they are forced to. Do not let them make you think otherwise.

Assuming that they actually have a valid, enforceable judgment against you, you have a couple of unappealing options, and I can't advise you as to which is best for you:

(1) Don't pay them anything. Hold tight and wait out the statute of limitations period on those loans (several years from the judgment or last payment). Your credit will be wrecked (but it probably already is). They may get a court order to garnish your wages (but they can do that anyway).

(2) Pay them what you can, in an attempt to at least prevent the total owed from mounting even more. Your credit will be marginally less wrecked. They may get a court order to garnish your wages. You will be paying them indefinitely.

In any event, you should inform anyone who contacts you or your co-signers that you wish to have no further contact with them. It is your legal right to do so. If they continue to contact you afterwards (except in the course of legal process), they have likely violated the FDCPA and your state's debt-collection regulations. Keep careful records. At that point, you may want to look for either a private lawyer or a consumer clinic at a local law school. The FDCPA provides for attorneys' fees so you have a better chance than most at finding a lawyer who will take your case (although they aren't going to be Perry Mason types). At that point, you should also complain to your state's attorney general and to the CFPB.

You're unfortunately in a very bad situation. Nasty people will be pressuring you to make it worse. Do not let them work on your sense of guilt or fair play. They have none. Stick to your legal rights and don't be fooled into suffering more than the actual legal penalties for your default. They're bad enough.

(P.S. If you ran up the debt at a for-profit school like Corinthian, you should definitely google to see if any state or the Dept. of Education is considering "defense to repayment" options for students at your school. This is a relatively small subset of student borrowers, but I'd be remiss not to mention it.)
posted by praemunire at 1:30 PM on February 24, 2016 [1 favorite]

That link I promised about discharging student loans via bankruptcy, among other things:
posted by Michele in California at 1:45 PM on February 24, 2016

Yes, I was served by a sheriff. Yes, I showed up in court and agreed to a payment plan.
posted by woodvine at 2:41 PM on February 24, 2016

Yes, I was served by a sheriff. Yes, I showed up in court and agreed to a payment plan.

You may be in violation of a court order and/or there may be a procedure through which you can have the payment order reinstated or revised (sometimes called a payment hearing). You need an attorney, not a consolidation loan. You may be able to do this yourself, but I really recommend you meet with an attorney for at least a free consultation.
posted by melissasaurus at 2:50 PM on February 24, 2016 [1 favorite]

I second that you need a lawyer and to talk to the court system. I could tell you my tale of woe, but I am not sure it would help you any and might freak you out.

Please, take melissasaurus's advice. It is the best advice you are going to get in this Ask.
posted by Michele in California at 3:16 PM on February 24, 2016

Yes, you really need to talk to an attorney. You don't want to stack a contempt finding on top of everything else. If you do manage to revisit the settlement, for the love of God, do not agree to a payment amount you can't make.
posted by praemunire at 5:06 PM on February 24, 2016 [1 favorite]

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