Department of Education crackdown precedes bankruptcy filing

In January 2016, the U.S. Department of Education mailed cease-and-desist orders to two companies it believed were taking advantage of its logo. According to reports, these firms operated businesses that revolved around selling their assistance to student loan borrowers. New Yorkers with such loans may be interested in learning that the companies had already been highlighted for potentially violating consumer laws and that one, Student Aid Center Inc., filed for bankruptcy in early February.

The bankrupt company had previously been named in a class action lawsuit that alleged it made illegal robocalls to consumers. In a separate lawsuit, the attorney general of Minnesota alleged that the company was fraudulently portraying its services and misrepresenting its ability to help borrowers qualify for loan forgiveness initiatives.

One lawyer said that the bankruptcy action wasn’t entirely unexpected considering the fact that regulatory agencies had already moved against the firm. While the Department of Education’s action was the first step it took against the companies, they had also been targeted by the Consumer Financial Protection Bureau. The lawyer also noted that if the Minnesota attorney general settled the lawsuit out of court, the bankruptcy filing could affect whether borrowers suffer losses.

Filing for bankruptcy doesn’t necessarily completely free a company of its financial obligations. To be accepted, bankruptcy plans commonly need to be approved by the court. Those who wish to file for bankruptcy in order to pursue debt relief may want to meet with an attorney in order to learn about what their filing terms actually entail.