Springtime for many Americans means more than just budding trees and blooming flowers. Many people look forward to a healthy tax refund to pay off debt, or, if they’re lucky, buy the next item on their wish list. However, Uncle Sam will step in and seize refunds for anyone over 270 days past due of their student loans. The Treasury Offset Program, a U.S. Department of the Treasury program, can seize federal payments to pay delinquent debts owed to other federal agencies, like the U.S. Department of Education. Last year, the Department of Treasury collected nearly $2.6 billion owed on defaulted federal student loans.
How Tax Refunds Can be Seized. The U.S. Department of Education notifies debtors by sending notices to the best address on file sometime in the summer, in order to give adequate time to rectify the default.
How Much Can Be Seized. The government can garnish up to 15% of your disposable income wages to pay a defaulted student loan, no matter what financial condition the person is in. To add fuel to the fire, the funds can be taken without permission.
How This Can Be Stopped. While there is no way to snap fingers and make student debt disappear, there are ways to get it forgiven. One way to avoid the U.S. Department of the Treasury program of tax seizures is to set up a mutually agreed upon repayment plan. A voluntary payment plan and timely payments can often lead to resolving the default altogether.
Bankruptcy Can Stop Wage Attachment Even if the debt is not dischargeable, a Chapter 13 Bankruptcy repayment plan can stop wage attachments for student loans arrearage. An automatic stay goes into effect, temporarily halting wage garnishment, which can provide needed relief at least for the short term. However, keep in mind that any unpaid interest not paid in the bankruptcy can continue to accrue.
Contact Patricia M. Mayer PC for more ways to unburden student debt.