- Contact the Dept. of Education to prevent wage garnishment.
- Consider filing a Chapter 13, which results in a court supervised repayment plan.
State and Federal Laws May Help You Stop a Student Loan Wage Garnishment.
The options available to stop or reduce a student loan-related wage garnishment depend on whether the delinquent student loans are federally insured loans, such as Perkins, Stafford, PLUS loans, or private student loans.
Federal Student Loan Garnishment
Federal law allows the Department of Education to garnish 15% of a delinquent borrower’s after tax income for federally insured student loans (34 C.F.R. Part 34-Administrative Wage Garnishment). It may do so as long as the garnishment does not bring the borrower’s weekly pay below 30 times the Federal minimum wage. As I write these words, this means a borrower is guaranteed $217.50 ($7.25/hour × 30 hours) per week exempt from garnishment. (These numbers are current as of early 2013.) If you make less than that amount each week, then your wages are exempt from garnishment altogether. Unlike other creditors, the federal government has the right to garnish wages, levy bank accounts, and seize property without first obtaining a court judgment against the debtor (31 USC Chapter 37, Subchapter II). Federal agencies may intercept your tax refund, which is called “offset” (26 U.S.C. § 6402(d) and 31 U.S.C. § 3720A). You also can have your income tax refund taken to pay down your student loan debt.
If you can prove to the Dept. of Education that its garnishment of your wages is causing your family an undue financial hardship, it may be willing to stop the garnishment and work with you in establishing alternate repayment terms. For example, facing foreclosure of your home as a result of garnishment should qualify as an undue hardship.
To try to stop an administrative garnishment, contact the Department of Education’s resource Facing Loan Default. The DOE provides a list of resources available for consumers who have defaulted on their loans. Another good resource to explore is the Student Loan Borrower Assistance Project’s (SLBAP) Administrative Wage Garnishments.
If your federal student loan payments are causing financial distress, review the Income-Based Repayment (IBR) program, and see the Dept. of Education’s IBR calculator. If you do not qualify for IBR, learn if Income Contingent Repayment is right for you.
If you defaulted on your federal loans and want to restart payments, see the Dept. of Education’s Loan Rehabilitation page.
Private Student Loan Garnishment
Private student loans, on the other hand, are basically the same as any other unsecured personal loan; the only major difference between private student loans and regular personal loans is that the former are generally non-dischargeable in bankruptcy.
Private lenders must file a lawsuit against the borrower and obtain a judgment before they can garnish wages, so it takes private lenders longer to begin a garnishment.
Depending on where the borrower lives, private lenders with a judgment may garnish as much as 25% of the borrower’s after-tax wages (15 U.S.C. 1673). However, the amount that can be garnished is specific to each state. See the Bills.com resource Collection Laws & Exemptions by State to determine how much of your pay can be garnished by private lenders. Texas and Pennsylvania, for example, do not allow wage garnishment for unsecured debts such as private student loans.
Keep in mind that no matter where you live, if your loans are federally insured, you can usually be garnished 15% of your disposable wages, regardless of your state laws regarding garnishment for other types of debts.
To try to stop a garnishment resulting from a private loan, you should contact the creditor to discuss your financial situation and try to negotiate an alternate payment plan. Unfortunately, the creditor may not be willing to stop the garnishment voluntarily, forcing you to explore alternative options.
Bankruptcy and Student Loans
The last option most people consider to prevent garnishment for student loans is filing for bankruptcy protection. Since student loans generally cannot be discharged in a Chapter 7 filing, you would probably need to file a Chapter 13 bankruptcy, which is a court supervised repayment plan in which your student loans, as well as other debts, would be repaid through monthly payments made to the court.
Chapter 13 can be an expensive and long-term commitment (5 years, typically), but if you feel it may be an option to stop your wage garnishment, consult with a bankruptcy attorney in your area to learn if bankruptcy will help improve your financial outlook. Surprisingly, some find their monthly payments under a chapter 13 are more than the amount they would have been garnished had they done nothing, so if you are considering bankruptcy, please make sure to discuss it in detail with an attorney to determine if it is the right choice for you.
Filing a chapter 13 bankruptcy may bring your mortgage current, stop a foreclosure, and allow you to pay now-delinquent payments over the course of your bankruptcy plan. To learn more about your bankruptcy options, visit the Bills.com bankruptcy information & resources page.