Payments on student loans that are guaranteed ultimately by the federal government — the vast majority of student loan debt, in other words — can be garnished from your paycheck. And it can be done without going to court.
But bankruptcy can stop the garnishment.
Even if you live in a state that prevents garnishment of wages, under federal law, the agency that guaranteed these student loans can issue garnishment orders.
The law provides that they must send you written notice — at your last known address (so it helps to have your right address on record) — at least 30-days before issuing a garnishment order to your employer.
You must be given an opportunity for a hearing before an administrative law judge, as well as an opportunity to review and copy your 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 fact. It will not stop the garnishment from running if you fail to act earlier though.
A student loan agency garnishment can take up to 15% of your “disposable income.” That’s not as generous as it sounds because “disposable income” simply means your pay after any other deductions required by law — usually this means your “after-tax” income.
Your employer is obligated to take this money or risk owing it themselves. However, they are not allowed to fire, refuse to hire, or take disciplinary action against you for this garnishment.
And for folks who recently were involuntarily unemployed, the law also provides that the garnishment cannot be issued until you have been continuously re-employed for more than 12-months.
It should also be noted that nothing in this law prevents the student loan lender from suing in state or even federal court and attempting to use your state’s collection laws to collect their money. So the restrictions on an administrative garnishment might not help then.
As I noted at the top of this blog, a bankruptcy filing can stop these garnishments assuming you are entitled to an automatic 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.