If you are in default on your student loan, the student loan creditor, or the collection agency for the student loan creditor can seek to garnish your wages or take your tax refund to offset the loan amount. A tax offset is where the Department of Education notifies the Department of Treasury to take the IRS tax refund to apply toward the loan amount that is due.
Once a tax offset has occurred, the only way to stop the offset is to pay the loan in full, consolidate your student loans, rehabilitate the student loan or settle for a partial payment or cancellation of the loan amount. If your student loan has been certified for offset, you will receive a tax refund offset notice from the IRS after the offset has actually occurred.
While bankruptcy does not stop the offset once it has occurred, the filing of a chapter 13 bankruptcy will stop the offset prior to the Depart of Education notifying the IRS to offset your tax refund. Further, in 2013 just over 174,800 people had garnishments issued by the Department of Education against their wages. This is up 45% from 2003. Chapter 13 is a viable option to stop the collection of the student loans, both through garnishments and tax offsets, and allow you to repay the student loan at an amount you can afford to pay back.
For more information on tax refund offsets by the IRS see The Student Loan Project.
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