“Dear Steve,
Wage garnishment has been in effect for almost two years. I was always told that you cannot file bancruptcy on fed student loans…is this true? Currently i am garnished for 25% every two weeks. I no longer can afford my home car etc. Im losing everything. I have filed bankruptcy before and would prefer not to do it again but the garmishment is drowning me. I filed an appeal and was told it went to a hearing but cannot get any answer on the result of it.
Can I file bancruptcy on my fed student loans?
Kristen”
Dear Kristen,
I’m so sorry this went all the way to what I assume to be an Administrative Wage Garnishment (AWG) and not a suit by the U.S. Department of Justice. It’s too bad someone didn’t mention earlier you could have avoided the wage garnishment all together by consolidating your federal student loans into a Direct Loan and then enrolling in an Income Based Repayment program where your payment could have been as low as zero dollars a month. For more on how that all works, click here.
You can consolidate your student loan debt if you are in default but doing it while you have an active AWG is a bit tougher and not as common. As far as I am aware there is nothing that would prevent the Department of Education (DOE) from allowing that but you might have to work closely with the DOE and or loan servicer to make that happen. It’s out of the ordinary, not illegal.
Technically when you consolidate your loans into a Direct Loan it should terminate the current AWG because the loans would be paid off in full by the consolidation.
Alternatively you could think about rehabilitating the loans out of an AWG. Under the new rehabilitation program you could enter into an income based payment plan and make a certain number of agreed upon payments on top of the wage garnishment. You’d have to talk to your loan servicer about doing that and what your income based payment would be. Your current garnished payment don’t count towards the rehab.
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Chapter 13 can allow many student loan debtors a means by which they and not the creditor dictate the repayment terms. In many instance, the rate of interest paid on a student loan within Chapter 13 can be reduced to 0%. While not everyone can meet the requirements of Chapter 13, it can be worth exploring as an option when negotiation fails.