Yes. Having federal student loans in default does not, by itself, stop you from asking the bankruptcy court to discharge them. The Justice Department's attestation process asks about default directly, and its guidance says that missed payments alone don't show bad faith.
What "default" means
According to Federal Student Aid, a federal student loan goes into default after at least 270 days of missed payments. Once a loan is in default, the government can use collection tools that don't require a lawsuit, including:
- Treasury offset: withholding your federal tax refund and certain federal benefits, such as part of a Social Security payment.
- Administrative wage garnishment: ordering your employer to withhold up to 15% of your disposable pay.
How actively these tools are being used has changed over the past few years. Read every letter you receive, and check your account on studentaid.gov.
Default doesn't disqualify you
The attestation form asks for the month and year your loans went into default. That is one fact among many, not a test you automatically fail.
The Justice Department's guidance says that when there is other evidence of good faith, not repaying, or repaying only some of the time, does not show a lack of good faith. Other evidence can include not having the money to pay, or meaningful contact with the Department of Education or your loan servicer. The form specifically mentions responding to outreach from a servicer or a collector.
For example, picture a borrower whose loans defaulted years ago after a layoff. Since then, she has taken calls from the collection agency, asked about consolidation, and explained her income. The default goes on the form, but so do those efforts.
Check who holds your defaulted loans
This step matters more than many people realize. Federal Student Aid explains that defaulted federal loans are transferred to the Department of Education's Default Resolution Group, but defaulted loans from the older FFEL Program go to a guaranty agency instead.
Our office handles federal student loans held by the Department of Education. If a guaranty agency holds your loan, the path may be different. Your studentaid.gov loan summary is the place to start, and our post on checking who holds your loans walks through it.
What filing bankruptcy does to collections
Filing a bankruptcy case triggers the "automatic stay." Under the Bankruptcy Code, the stay generally bars acts to collect debts that arose before the case, including many setoffs, with some exceptions. How long it lasts, and how it applies to a particular garnishment or offset, depends on your case. If you've received a garnishment or offset notice, tell us right away and bring a copy.
Do you have to get out of default first?
Neither the Justice Department's guidance nor the attestation form requires you to get out of default before asking for a discharge. Some borrowers still choose to, for their own reasons, and in some situations consolidating an older loan before filing can change who holds it. Timing matters, so get advice before you take that step. Our office doesn't handle rehabilitation or consolidation applications on their own.
The honest limits
A default doesn't hurt your case automatically, but it doesn't help it either. The government still asks whether you can afford to pay now, whether that is likely to continue, and whether you have acted in good faith. It may support a full discharge, a partial discharge, or neither, and the bankruptcy judge makes the final decision. It depends on your facts.
Talk to us
If your loans are in default and collection letters are piling up, the first conversation is free. Mr. Shapiro can review your loan summary and finances and tell you whether the attestation process is a realistic fit. Call 702-386-8600.