Filing chapter 7 bankruptcy or chapter 13 bankruptcy stops a student loan wage garnishment immediately. Bankruptcy has a rule that prevents collection activities as soon as you file a bankruptcy case. This rule is called the automatic stay.
The automatic stay will stop a garnishment for both federal student loans and private student loans.
The US Department of Education suspended collection activities on defaulted federal loans it owns. Please note two things. First, the Department of Education doesn’t own all federal student loans. Some federal loans are owned by guaranty agencies like ECMC, MOHELA, Trellis, etc. To find out who owns your federal loans, call the National Student Loan Data System at 1-800-999-8219 or the Student Loan Support Center at 1-800-557-7394. Second, the suspension is temporary. It will last until the end of September 2020.
The process to stop wage garnishment when you file bankruptcy
To prepare your bankruptcy case, your bankruptcy lawyer will ask you to list, among many other things, all of your debts. Those types of debts will include:
- car note;
- credit card;
- medical bills;
- unpaid utilities;
- child support;
- student loan debt, etc.
Your bankruptcy attorney needs that information so he can mail each creditor a notice that you filed a bankruptcy case. This notice is what lets your creditors know they have to stop collection activities against you.
Mail is slow. And my clients need the student loan garnishment to stop fast.
So here’s what I do for them if they have an administrative wage garnishment for federal student loans:
Immediately after I file their case with the bankruptcy court, I fax a notice of the bankruptcy filing to the Department of Education and the collection agency handling their loan.
If the garnishment is for private student loans, I file a notice they have filed for bankruptcy with the court where the judgment was entered. I also fax/email a copy to the law firm that represented the holder of the private loans in the state court lawsuit.
Bankruptcy will not get rid of your student debt
Filing bankruptcy, by itself, does not discharge student loans.
Here’s a sample bankruptcy discharge order.
You’ll see that it says you’ve received a discharge of all your dischargeable debts (both unsecured debt and secured debt). But other debts (child support, certain tax debts, student debt, etc.) that aren’t ordinarily dischargeable in bankruptcy remain.
To get rid of your student loans in bankruptcy, you have to file a lawsuit.
This lawsuit is called an adversary proceeding.
In that adversary proceeding, you’ll typically argue to the bankruptcy court that your student loan payments are an undue hardship.
The Bankruptcy Code doesn’t define undue hardship.
Because of that, bankruptcy courts have created tests to try and figure out whether you have an undue hardship.
The most popular of those tests is the Brunner Test.
The Brunner Test tries to determine undue hardship by asking three questions:
- Does your current monthly income let you maintain a minimal standard of living for you and your dependents while repaying your student loan debt?
- Is your financial situation likely to stay the same for a significant portion of the repayment period of the student loans?
- Have you made a good faith effort to repay your student loans?
If the answer is no to any of those three questions, you will have failed the Brunner test.
Click here to learn more How to Discharge Student Loans in Bankruptcy.
How can I stop a student loan garnishment without bankruptcy?
If you don’t want to file for bankruptcy, you have two options to stop a student loan wage garnishment once it starts:
- enter into the loan rehabilitation program; or
- request a financial hardship review.
Neither option will stop wage garnishment immediately.
The loan rehabilitation program requires you to set up a repayment plan and make 5 monthly payments under that plan before the garnishment stops.
And the financial hardship review hearing takes about 2 to 3 months for the process to complete.
Click here to learn How to Stop Student Loan Garnishment.