While federal law says creditors can’t take Social Security and Veteran’s benefits to pay debts, the practice is widespread and is there no established process for enforcing the federal prohibition, the Wall Street Journal reported on Saturday. When banks receive a garnishment order, their standard response is to freeze the customer’s account, but banks and debt collectors say it’s not their job to check whether accounts contain cash from exempt sources. That the burden falls on Social Security recipients, typically elderly or disabled, who have suddenly lost access to their bank accounts and have no idea what to do. While account holders can file a claim with a debt collector to have any funds that came from Social Security or Veteran’s benefits exempted, federal law doesn’t say who should tell them this.

Senate investigators said that Sallie Mae, the nation’s largest student loan company, may have violated federal laws by repeatedly using aggressive tactics to collect loans from student borrowers, the Washington Post reported today. Aides to Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate education committee, said they believed the Reston, Va., lending giant tried to collect debts that were not owed, fired employees who attempted to help borrowers and intentionally sent payment notices to an incorrect address to force a borrower into default. “I am concerned that several private lenders may be engaging in harsh and inappropriate tactics” that “are prohibited by federal law and regulations,” Kennedy wrote in letters sent yesterday to Sallie Mae and Nelnet, a Nebraska student lender, that requested documents about their collection practices. Kennedy’s probe of improper loan collection practices comes in the midst of a nationwide investigation into the $85 billion-dollar-a-year student loan industry. The unfolding scandal has revealed kickbacks and conflicts of interest among lenders, universities and government officials, prompting pledges from lawmakers of both parties to reform the system.

Once the Chapter 7 bankruptcy case is filed, there is a deadline set to object to the debtor’s discharge.  Shortly after that deadline has passed, if there have been no objections to the discharge, and all of the post-filing requirements have been completed, the debtor shall receive a discharge likely within 10 days thereafter.  What is this post-bankruptcy filing requirement that I speak of.  What I’m speaking of is the two hour financial management class that each individual debtor must take prior to receiving a discharge.  If the debtor does not take that two hour financial management class, the case will close without discharge.  In those cases, the debtor has gone through the complete process, paid the filing fees, appeared at the 341 meeting of creditors, and yet will not receive a discharge on those debts.
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