California Student Loan Defaults

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

Bills.com