Dear Dr. Don,

I receive both Veterans Affairs and Social Security disability payments. Can my bank account be garnished for student loans taken out 12 years ago?

Thank you,

-Troubled Tina

Dear Tina,

Unpaid, federally guaranteed student loans are one of the reasons you can have your disability checks, both Veterans Affairs and Social Security, garnished by the federal government. There are limitations on how much the government can take each month, but they can take the money.

What's ironic is that disability is also a reason for the lender to discharge your student loans. Called a total and permanent disability discharge, it would seem to be a logical step for you to attempt to take, eliminating this financial obligation for federal student loans. The rules for private student loans may vary depending on the lending program and the lender, but the rules for federal student loans are fairly straightforward.

Also, there can be an income tax issue on canceled debt. Both the state and federal governments may consider the canceled debt as taxable income. There is an insolvency exclusion to the taxation of the canceled debt, which can reduce the tax bill if that pertains to your financial situation. Work with a tax professional in managing the tax impact if the debt is canceled.

Private student loan lenders can garnish wages after winning a judgment against the debtor, but they don't have the ability to garnish federal benefits like a federal student loan lender. Private student loans also come under the statute of limitations based on applicable state law in the private lender being able to win a court judgment to garnish wages.

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