My cosigner declared bankruptcy, AES discharged my loan to NCO, what do I do/what should I expect?

[westy81585]

My mother cosigned on 3 of my student loans for me.  Well she filed for bankruptcy recently and neglected to tell me beforehand.  I found out a few days ago when I logged onto AES to make a payment and discovered my loan was listed as defaulted, and showed the balance was zero.  Pretty surprising to me as I've never missed a payment and the loan was current.  I called them and they told me my cosigner declared bankruptcy, and per their standard procedure the loan immediately defaulted and was sent to NCO.  I called NCO and they don't even have the loan in their system yet (have to call back Monday).  The nice woman informed me however that while I could continue to pay the loan (of my own will, they can't ask me to pay), as soon as my mother leaves bankruptcy the loan will be discharged to "collections."  My mother made a huge mistake filing for bankruptcy (she was trying to force her credit card debtors to work with her on lowering payments) and she is actually backing out of bankruptcy as early as this coming week.  She didn't even meet the means test, which her lawyer had told her she would (a whole different story). 

Anyways, what can I do here?  What should I expect?  I'm wondering if NCO is going to try to attach any collections/handling/late fees or anything to my loan?  If they do how do I fight that, since it's utterly outrageous that I should receive any fees for a loan that was in PERFECT standing.  I'm also worried whatever collections group they send it too is going to just be a nightmare to deal with.  I am waiting to see them attach their own fees and then tell me the entire amount is due immediately and pressuring me to pay on it right away. 

What do I do here?  What are my options?  I'm exploring a consolidation loan from a local credit union, with the goal of buying out the loan from NCO and just dealing with the CU... but ironically enough it looks like I won't be able to without a cosigner (thats what got me into this problem in the first place!!!!). 

Advice and suggestions? 

[drkaje]

There's no way to take her off the loan?

[westy81585]

Had I known she was applying for bankruptcy I could have probably pulled her off in advance. But I've been told that is no longer an option. It would be somewhat moot anyways now though since my immediate concern is NCO or whatever collections group trying to take me for all I'm worth.

[Gypsie77]

I'm sorry this happened to you Westy.  I would keep calling the lender and going up the chain of command.  There has to be someone that can explain what to do in this situation.  Hopefully you will know more once everything is settled with the bankruptcy or the bankruptcy train is backed up. 

[sheasomvil]

OP...

After hours of Googling I found this post. I thought I was alone! This EXACT SAME THING happened to me. I have no idea what to do. I logged in, like I always do every month, and it says that the account was paid. After a brief moment of excitement I saw the words... BANKRUPTCY. Now, I knew she was filing. However, I didn't think it would affect student loans. Much to my surprise...

So, have you figured anything out? Please respond to this so it will email me and let me know that you did so. You are, quite literally, my only lead. 

Thanks! 

[westy81585]

Sheasomvil:  Here's what I have thus far.  As I mentioned my mother is cosigned on 3 of my student loans.  Thankfully Sallie Mae and Great Lakes Education (who I highly recommend) both were pretty cool about it.  SM suspended my account but didn't apply a default or anything.  I can continue to make regular payments (of my own will) and it will go back to a regular account when my mother leaves bankruptcy.  GLE simply relieved my mothers obligation until her bankruptcy proceedings are over, no effect on me or the account. 

Now with AES/NCO...

First things first, I called AES and had them send me a copy of the original loan agreement, as well as the ENTIRE payment history of the loan, and a special letter stating the exact reason the loan was defaulted.  I also got ahold of the EXACT amount that was paid out to them by NCO.  It took nearly two weeks for my file to turn up on NCO's computers (and that's from the time I originally posted this question which was a full 9 days after it had defaulted).  When it did show up the amount owed was $493 greater than when it left AES.  I inquired about this and the lady on the phone was able to put in an official inquiry into why the amount was $493 higher.  She said point blank she wasn't sure but thought there may have been some penalty added.  After another 2-3 weeks (with me calling basically every other day) they finally got the response to the inquiry which said they had made an error and they would correct the amount on the loan. However they didn't say how much they would correct it, or when.  The lady on the phone again (which BTW all of this is through her, they will not send you anything via mail or call you) told me this could take 30-45 days to effect the account.  I am still waiting to see if that adjustment has happened. 

I was able to get my account number and the special address which I can send payments too (they have a specific department, you HAVE to send it to that department).  I have made two payments thus far and both have gone off without a hitch.  They have told me they cannot change the interest on the loan without renegotiating it with me, and thus far it is the same as when it was with AES.  When I make the payments I ensure I am using checks that have a carbon copy, and when it posts to my bank I print out the receipt from the bank website.  I am keeping all that information in a file.  In addition I have recorded every second of every phone call I have had with AES and NCO on the matter.  I'm in Ohio where that's 100% legal, in Delaware (where NCO is) there are two pieces of law that say opposite things (one says you can record without telling and the other says you can't), so I'm just taking my chances.  NCO seems to have 1-2 people working at a given time.  Their phone system is HORRIBLE, I have had my call lost by them at least 10 times. When I call back I almost always get the exact same rep I was speaking with when I was dropped.  The first 10-12 times I called I had the same exact lady all but once.  They also will close due to inclement weather, in which case you'll be forwarded to another department that has no ability to help you at all (but in fairness is way nicer).  I also get my balance every time I call them and I've been keeping track of that. 

When I initially checked my credit report (I think the day or day after I OP'd this) my credit was unaffected.  The Sallie Mae loan and AES loan were both showed as current and paid.  I am going to check again probably in early March (using another of my free credit reports, you get 1 a year per agency, 3 agencies, so I've done 1 so far). 

Hopefully that all helps somewhat.  I can keep you posted when things move along futher.  My mother to this point isn't sure if she is out of bankruptcy yet, she hired one hell of a bad lawyer. 

[sheasomvil]

First off, thank you so very much for relaying that information. Hopefully this thread will be at the top of Google searches on the topic and can help someone else, because trust me... there is little out there. Even the most complex of searches using boolean operators and the such only bring up a few things, and it's almost impossible to weed out this specific scenario. It's hard to search for "bankrupcty" "student loan" "cosigner filed" without generating posts about the debtor filing and the parent/cosigner being on the hook for the child who went belly up, if that makes sense. It's relatively rare in the wild world of the internet to find this situation (ours) where the parent has filed for bankruptcy and primary debtor (us) are dealing with a very strange circumstance. 

Second off... are you my twin?! I am not even joking when I say that I have three loans cosigned by my Mom (who filed). Sallie Mae, Great Lakes Lending, and AES. How very very strange!! Sallie Mae is practically impossible to get a hold of in my experience, I'm glad you had an easier time. It just shows the account as suspended due to bankrupcty proceedings (initially) now it won't let me log in at all. When I tried calling, they've hung up on me twice because my Mom's name is a very "female" name (if that makes sense) and they don'y buy into my man voice and scream fraud. Jesus! I'm trying to give them money, you'd think they would have a more reasonable attitude! 

Great Lakes just shows as "Forbearance" for 6 months. What I'm thinking (from my search on this) is that Great Lakes thinks it's a Chapter 7 situation instead of a 13. I believe that because in a Ch7 the process takes 6 months and student debt is considered on hold for that amount of time. Who knows. I'm tackling them one by one. AES, considering they are the only one that shows up on my credit report, is the one I am concerned about primarly and I will take care of the others in sequence. Obviously I know that the other debts are mine, and I will not leave my Mom in the dust when Sallie Mae and Great Lakes come a'knockin in 5 years. It's just (call it selfish) AES is the only one that could potentially hurt my credit, and I've worked extremely hard to rebuild mine since my idiotic early 20s. In the 5 years that my Mom will be in a Ch13 Repayment Plan, there's nothing that can affect her credit score anyway, so I am concerned about myself first.... so AES (again) is my concern. 

I'm not expecting you to know this but hopefully together you and I can solve this problem for not only us but for others out there like us. My question is.... what exactly is going on with the loans right now? My Mom is under the Ch13 plan, therefore the loans are apparently suspended, bought out, on hold, whatever. Are they collecting interest? In my search I've found a few people who have ignored this situation, apparently crossing their fingers that it would just dissappear, and 5 years later it rears its head with turmoil. The lenders not only expect the money, but they expect it immediately and have taken kids to court over it. 

Again, it's the question of interest. Let's say that Sallie Mae, Great Lakes, and AES just sit back for 5 years due to the laws of the bankrupcty courts, waiting to pounce on me for all I'm worth. Well... what if instead of contacting them now, I'm just ready for that day instead? Surely it's not legal for those loans to acrue interest in the meantime, right? The loan balances would be astronomical! (I giggled as I read that, mainly because I'm naive to think any common sense applies to creditors and their ways around laws). However, if they are sitting there... frozen... and will come back to life in 5 years... I'm actually okay with that. I'll double up the payments to myself, essentially paying on the loans interest free and in 5 years I'll answer the nasty phone all with a shiny check for the total amount. No harm, no foul. Then again... what if that is not the way it works. I wish I had the fire and passion I had when I was 19, but I'm glad that I have the smarts/responsibility that I have now as a 29 year old. If I had that fire and passion still, I would start a war against them. Surely we can't be the only ones, and this is a crazy loophole that really has the potential to hurt people! I would take this &^*( right to congress and blast it over social media until my name was heard. Alas, I am busy building a career and a house, and all I really want to know is what my rights are, and what the interest is doing. 

Do you have any thoughts? (PS, anybody else reading this... please chime in. We need all the help we can get!)

Don't forget to check the little button below so it emails you when someone posts here. Thanks again, and I look forward to a reply. 

[Anonymous]

Hello there!

Any one of you guys were able to find a solution to this complex issue? I think I will be on the same boat soon as my co-signer just notified me that they will be filing bankruptcy soon. I've been making payments on my private student loans for about 8 years now and never missed a payment. I have an excellent credit score as well and I'm really worried about my PSL going into default because of my co-signer's BK.

Any advise will be greatly appreciated!

Thanks in advance

[SCF]

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@Anonymous wrote:

Hello there!

Any one of you guys were able to find a solution to this complex issue? I think I will be on the same boat soon as my co-signer just notified me that they will be filing bankruptcy soon. I've been making payments on my private student loans for about 8 years now and never missed a payment. I have an excellent credit score as well and I'm really worried about my PSL going into default because of my co-signer's BK.

Any advise will be greatly appreciated!

Thanks in advance

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Have you applied for a co-signer release?  With solid credit and 8 years of on-time payments, I would think you would qualify with most lenders.  I would call them and ask, and try to get it done before your co-signer files.  If you can avoid this type of mess, that's probably the best plan!

[Anonymous]

I have the same exact problem as the original two posters! My mother was the co-signer on an AES loan, she filed bankruptcy and they immediately, with no notice or communication, "charged off" the loan. I had NEVER missed a payment or was even late in 7 years. I only discovered what happened because I checked my credit report before applying to refi my home. My credit score dropped almost 100 points because of this negative info and the broker said I no longer qualify to refi.

Please, does anyone know what I can do to get AES to change the way it is reported on my credit report? It's just crazy, seems like they should not have the right to send you to collections if you are not late. And seems like it would be illegal for AES to report negative info when I have done nothing wrong.

Please, any advice on how to fix my report with AES.