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California Student Loan Defaults

If I default on a private student loan, can the creditor get a wage garnishment on my spouse? I live in California.

I reside in California and took out a private student loan before i was married. it is in my name only. I defaulted on it AFTER i was married. does this mean the creditor can seize my husbands assets, levy his bank accounts, or garnish his wages if they are all ONLY in his name? How long is the statute of limitations for private student loans in CA? How long does a judgment stay on my credit report if they happen to get one?

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California Student Loan
Highlights

  • California is a community property state.
  • Each spouse's debts are considered part of the 'community.'
  • A creditor may obtain a judgment from either spouse in community property states.

In general, community property is the earnings during marriage that is the product of a spouse’s time, efforts, energy, and skill. In California, the presumption is all property acquired during marriage is community property. Property acquired before marriage is considered separate, unless the parties transform the assets into community debt.

Pre-marital debt is treated differently from assets, however. See California Family Code Section 910(a), which reads in part:

Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.

In other words, community funds may be reached by a judgment-creditor to satisfy a debt. But, as Bills.com reader Kristin points out below, California § 911 makes a spouse’s earnings off-limits:

911. (a) The earnings of a married person during marriage are not liable for a debt incurred by the person's spouse before marriage. After the earnings of the married person are paid, they remain not liable so long as they are held in a deposit account in which the person’s spouse has no right of withdrawal and are un-commingled with other property in the community estate, except property insignificant in amount.
(b) As used in this section:
(1) "Deposit account" has the meaning prescribed in paragraph (29) of subdivision (a) of Section 9102 of the Commercial Code.
(2) "Earnings" means compensation for personal services performed, whether as an employee or otherwise.

What this means is community assets are available to judgment creditors a non-debtor spouse's wages deposited to a separate account are off-limits.

Student Loans & California Community Property

What may be confusing you is you may have heard that student loans are treated as separate property upon divorce in California. That is true (CFC §2627). But, during the time that the couple is married, their debts are considered part of the community, with a few exceptions that do not apply to the situation you described.

This means that if a California spouse defaults on a student loan, the creditor has the right to obtain a judgment and collect from either the debtor or the debtor’s spouse’s community property. However, the creditor may not pursue the spouse's wages.

California Statute of Limitations

You asked about the statute of limitation on your private student loan. According to California Code of Civil Procedure § 337, the statute of limitations for debt related to a written contract is four years, and an oral contract is two years from the date of breach. See the Bills.com resource Collection Laws and the Statute of Limitations for the rules in other states. You were clear in stating your student loan is private. If your student loan was federal, it would not be subject to any statute of limitations that would prohibit the Dept. of Education from collecting a delinquent federal student loan.

Judgment & Credit Report

Federal law (US Code Title 15, §1681c) controls the behavior of credit reporting agencies (CRAs). The specific law is called the Fair Credit Reporting Act (FCRA). Under FCRA §605 (a) and (b), an account in collection will appear on a consumer’s credit report for up to 7½ years. To determine when an account will be removed by the CRAs (TransUnion, Equifax, and Experian and others), add 7 years to the date of first delinquency. The date of first delinquency is shown in credit reports. Subsequent activity, such as resolving the debt or one debt collector selling the debt to another collector, is irrelevant to the 7-year rule.

Some debts have a reporting period longer than 7 years, including:

  • Tax liens: 10 years if unpaid, or 7 years from the payment date
  • Bankruptcy: 10 years from the date of filing (15 U.S.C. §1681c)
  • Perkins student loans: Until paid in full (20 U.S.C. §1087cc(c)(3))
  • Direct and FFEL loans: 7 years from default or rehabilitation date (20 U.S.C. §1080a(f)(1) and 20 U.S.C. §1087e(a)(1))
  • Judgments: 7 years or the debtor’s state statute of limitations on judgments, whichever is longer

The FCRA 7-year rule is separate from state statutes of limitations for debt issues. All trade lines can be reported on each of the credit bureaus. However, the reporting agencies must update and keep accurate data in their credit files. If there is erroneous information (like a collection account, that you believe is inaccurate), you must notify them (typically through a certified letter) and then wait one reporting cycle (90 days) for the errors to be removed.

I hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

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5 Comments

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  • WC
    Jul, 2013
    William
    Murrieta, CA
    A friend has a private student loan that she defaulted on 20 years ago - she is disabled and will never be able to work again. The loan company is still harassing her. She gets as many as a dozen calls every day. What can she do to make them stop? The loan was originally through Bryman College in Southern California. The company has sold the loan numerous times over the years.
    0 Votes

    • BA
      Jul, 2013
      Bill
      Only a lawyer can give legal advice. I am not a lawyer, so please consider this a non-legal opinion.

      A private student loan is subject to the statute of limitations on debt. If your friend has made no payments on the debt for 20 years, she can use the SOL has an affirmative defense, if she is sued. She would need to go to court, were she sued, to make the SOL argument. To deal with the harassment, she needs to contact an attorney that specializes in cases involving violations of the Fair Debt Collections Practices Act (FDCPA). I suggest she do a search online for "FDCPA attorney" and the name of the city in which she lives. Lawyers who work on these types of cases do not normally charge any advance fees. They get their fees from the debt collectors that are harassing the lawyers' clients, if the lawyers win the case. Therefore, they lawyers only take cases they feel are winners.
      0 Votes

    • BA
      Jul, 2013
      Bill
      Tell your friend to take these five steps the next time she answers a telephone call from a collection agent attempting to collect the 20-year old private student loan:
      1. Ask for the caller's employer's name and mailing address. An honest collection agent will share this information without hesitation. An unscrupulous collection agent will invent wild excuses to avoid sharing this information. Tell her to be persistent.
      2. She should tell the collection agent she disputes the debt.
      3. Send the collection agent a cease communications notice. Under the Fair Debt Collection Practices Act, a collection agent that receives this notice may must stop calling the consumer.
      4. File a complaint with the Federal Trade Commission if the calls from that particular collection agent continues.
      5. She will need to repeat Steps 1 through 4 if and when the collection agent sells her account to another collection agent.

      Help your friend learn more about the collection laws in her state.

      0 Votes

  • KM
    Oct, 2011
    Kristin
    This is incorrect. A spouse's earnings CANNOT be seized for their partner's pre-marriage loan. Read below:

    911. (a) The earnings of a married person during marriage are not liable for a debt incurred by the person's spouse before marriage. After the earnings of the married person are paid, they remain not liable so long as they are held in a deposit account in which the person's spouse has no right of withdrawal and are uncommingled with other property in the community estate, except property insignificant in amount.
    (b) As used in this section:
    (1) "Deposit account" has the meaning prescribed in paragraph (29) of subdivision (a) of Section 9102 of the Commercial Code.
    (2) "Earnings" means compensation for personal services performed, whether as an employee or otherwise.

    0 Votes

    • BA
      Nov, 2011
      Bill
      I was sloppy in my original answer. Under California Family Law 910, community assets are available to judgment creditors. As you point out in quoting 911, a spouse's wages deposited to a separate account are off-limits. This means that if the spouse of a judgment-debtor keeps his or her wages in their own account, they cannot be levied. However, as mentioned, other community assets are fair game.
      0 Votes

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