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Unpaid student loans can result in garnishment of disability benefits

Our Michigan readers know how important disability benefits are to those who receive them, whether through the Veterans Administration or the Social Security Administration. The safety net provided by these benefits is critical for many Americans. But many disabled people aren’t in the simplest of financial situations. For some, there are unpaid debts that can actually reduce their disability payments.

Student loans are among these debts. Unpaid, federally guaranteed student loans are one reason some folks have their disability checks garnished. The federal government cannot garnish everything from these monthly benefits, but they can take enough to significantly cut into the safety net. 

Private student loan lenders are able to garnish wages if they win a judgment against eh debtor, but they cannot garnish federal benefits in the same way a federal student loan lender can. State law can also bar a lender from garnishing wages because of the statute of limitations.

What it interesting is that student loans, while nearly impossible to discharge in bankruptcy under most circumstances, can be discharged because of total and permanent disability. Those who are receiving Social Security disability payments or who have been declared totally and permanently disabled by the VA system may qualify for discharge of their student loans.

Debt that is discharged could be considered as canceled debt at the federal and state level, though individuals who are insolvent may qualify for a reduction in the tax bill. In handling the issue of garnishing of disability benefits, bankruptcy and tax issues, it is important to work with an experienced attorney and tax professional to ensure thigns are done correctly.

Source: Fox Business, “Garnish Disability to pay Student Loan?,” Don Taylor, June 10, 2013.