Paycheck Garnishments from Student Loans & the IRS
Both the IRS and Government guaranteed student loans can garnish your paycheck without going to court. But bankruptcy can stop the garnishment even if they are priority debts or even if they can’t be discharged. The IRS and Department of Education can issue garnishment orders even in states that dont allow garnishments. But a Chapter 7 may allow you to discharge these debts or even if they cant be discharged they may be repaid in part or in full in a Chapter 13 allowing you to keep your paycheck and repay 100 or 150 per month rather than have 15% 25% or even 100% of your paycheck garnished.
Before Issuing a Garnishment
Both the IRS and Student loan Department must send you written notice — at your last known address at least 30-days before issuing a garnishment. You must be given an opportunity for a hearing before an administrative law judge, as well as an opportunity to review and copy your IRS or student loan records. And you are supposed to be given an opportunity to enter into a payment plan instead of the garnishment.
And even if you don’t ask for a hearing before the garnishment begins, you may ask for one after the garnishment stops but it will not stop the student loan garnishment. The IRS can do a 100% garnishment in some cases but normally only takes 25%. A student loan agency garnishment can take up to 15% of the after tax “disposable income.” Employers are not allowed to fire, refuse to hire, or take disciplinary action against you for a garnishment but may disimiss an employee for “other reasons”.
Debtors who have been recently involuntarily unemployed, cannot be garnished until they have been continuously re-employed for more than 12-months. It is becoming popular however for Student loans to sue in state or federal court to collect. So Administrative garnishment restrictions do not apply if you have been sued in State or Federal Court.
Speak to Your Lawyer
But bankruptcy stops these garnishments if you are entitled to a stay. But it will generally only apply for as long as you are in the bankruptcy case. So it is worth exploring with your bankruptcy lawyer whether a long-term payment plan, like Chapter, 13 could be beneficial in restructuring these debts, if you cannot qualify for a hardship discharge of them.