Bankruptcy and Student Loan Default

If you fall behind in your student loans, the government has a number of ways to come after you to get their money. When you stop paying on your student loans altogether, they are considered to be in default.

If your student loans are in default, the government can deny you new student loans and grants. This can cause serious financial stress if you are trying to get additional training for a better job, but you can't afford to go to school without financial aid.

Wage Garnishments

When student loan lenders are attempting to collect on the loan, they have the right to garnish your wages without obtaining a judgment from the court. By law, you are to be notified by the government about your right to a hearing. You can request a hearing and explain how the garnishment would result in extreme financial hardship.

Tax Refunds

Another way the government can get your money is to garnish your tax refunds, including any earned income tax credit you are owed from the IRS.

You should receive notice of intent to seize your refund. You have the right to contest this action and ask for a hearing. If you did not receive a notification, you have the right to complain to the Department of Education that you did not get a chance to defend your reasons for the loan being in default.

If you received a joint tax return with your spouse, and the government took the whole thing, your spouse can recover some of the money by sending a form to the IRS. (

Federal Benefits

Certain federal benefits may be taken to collect on Student Loans.

∙ Social Security Retirement and Disability Benefits
∙ Black Lung Part B Benefits
∙ Certain Railroad Retirement Benefits

The government will not take your entire check. They cannot take more than 15% of your total benefits.

Removing Your Student Loan Debt

To get out of your loan default, you can try to get a loan cancellation. In some cases, not only can you get the entire loan wiped out, but get money back you paid on the loan.

Your school ripped you off:

∙ Closed School Cancellation. If your school closed while you were still enrolled or within 90 days of you leaving school.
∙ False Certificate Cancellation. If your state prohibits you from getting a job in the field, you were trained for.
∙ Unpaid Refund Cancellation. You can cancel a portion or all of your loan if after you left the school, they didn't pay you any refunds you were owed.
∙ Disability Cancellation. If you are permanently and totally disabled, you can get your student loan canceled. To get the cancellation, you must get a doctor to certify you are disabled and that the disability happened or worsened after you got the student loan.


It is generally challenging to get your student loans discharged in bankruptcy. You must convince the judge that it would be a significant hardship for you to make the payments.

Even if you are unable to get your loans dismissed in bankruptcy, getting your other debt wiped out so you will better be able to pay your student loans could be a significant help.

If you would like more information about bankruptcy and how it can help you with your student loans, contact a Sacramento bankruptcy attorney.

Contact Liviakis Law Firm for a Free Initial Consultation

(916) 459-2364