Law Articles

Injured Spouses

If you filed a Federal income tax return jointly with your spouse, the entire refund from that return, including the part that came from withholdings on earnings of your spouse, is subject to offset. The non-liable or "injured" spouse may reclaim his or her portion of the refund by filing an injured spouse claim form (IRS Form 8379) with the Internal Revenue Service. You may download this form at the IRS Web site or may request one from the IRS by calling 1-800-829-1040. You also may be able to obtain the form at your local library, IRS office or from your tax preparer. Only the IRS will be able to answer questions about whether you qualify for an injured spouse refund and how much you may receive.

Earned Income Tax Credit

The entire amount of the refund, including any portion based on an earned income tax credit can be legally offset and applied to satisfy your defaulted Federal student loan or grant obligation.

Hardship Caused by Wage Garnishment

Federal law authorizes the Department or the student loan guarantor that holds a defaulted loan to collect the debt by non�judicial wage garnishment � a withholding order issued by the Department or the guarantor without the need for entry of a court judgment against the debtor. Prior to garnishment, the debtor must be offered an opportunity to repay the debt voluntarily or to obtain a hearing at which the debtor may object to garnishment either because the debtor believes that the debt is not owed, or that garnishment would cause financial hardship. To avoid garnishment, a debtor must object within the deadline explained in the notice � failure to do so will result in issuance of the garnishment order. A debtor who misses the deadline may obtain a hearing on a financial hardship objection, but withholding may start and continue through the hearing process. Hardship objections must be presented to the party � the Department or the guaranty agency � that sent the notice. If a debtor misses the deadline but requests a hearing, garnishment may start but cannot continue for more than 60 days from the hearing request date, unless a decision is issued that garnishment should continue.

Hardship Caused by Unreasonable Payment Requirement

When a Federal student loan goes into default, or a grant overpayment is identified, the party to whom that debt is owed can demand that the debt be paid in full immediately, and the Department, school, or guaranty agency that holds the debt you owe has the legal right to demand that repayment in full immediately, and to take enforcement action to collect the full amount if not paid in full.

The debtor is then responsible for satisfying that demand from his or her own funds or assets, from funds borrowed from third parties or from Federally-financed loan programs, or agreeing to repay the debt on installment terms that are satisfactory to the Department, school, or guaranty agency that holds the debt. A debtor who claims that he or she cannot afford to repay a particular installment amount bears the burden of proving that the amount exceeds what he or she can afford based on his or her total financial circumstances, and that some lesser installment amount can be repaid. To do so, the debtor must provide a complete statement showing the income and expenses of the debtor and his or her household members. If your debt is owed to the Department, you can download this Financial Disclosures Statement now. You should also understand that any payments you make voluntarily while you are negotiating a payment arrangement would both reduce the amount you owe and will demonstrate that you are acting in good faith.

Source: Federal Student Aid, U.S. Dept. of Education

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