Student Loan Garnishment

With the unemployment rate slowly improving, a big concern among individuals is student loan debt.  Many students borrow money from the government or private loan companies such as Sallie Mae with the expectation that they will be able to repay the loans when they graduate from college.  However, the harsh reality is that post-secondary graduation rates are abysmal and often those who do graduate enter a depressed job market.  Frequently, graduates are either unable to find work or are underemployed, making it difficult to keep up with their loan payments.  These days education does not guarantee a job, but the government does not care and they can legally garnish your paycheck to collect on a defaulted loan.

The law allows the government to garnish up to 15% of your disposable income without the permission of the court or an official judgment.  “Disposable income” is whatever is left of your paycheck after all deductions which are required by law (such as taxes) are withheld. The government cannot take more than the equivalent of 30 times the current federal minimum wage, which is $7.25 an hour.  This means that 30 x $7.25/hour is $217.50 a week, which the government may take to repay your loans.

Unfortunately, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPCPA, made education loans almost impossible to discharge in personal bankruptcy.  Thus, unless you can prove “undue hardship” the debt will remain intact after bankruptcy.  However, there are strategies for dealing with student loan garnishment and many people seek the protection of Chapter 13 bankruptcy.  Your bankruptcy lawyer will customize a plan to repay your debts over a three to five-year period.  By filing a Chapter 13 bankruptcy all collection efforts must stop and by including your student loan payments you may be able to reduce the amount of your monthly payments and make a sizable dent in your loan balance.  In the meantime, your bankruptcy lawyer will work hard to consolidate all of your education loans into one loan payment so that you will be on better footing when you emerge from bankruptcy.

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