When student loans are discharged through bankruptcy, many borrowers worry about the potential tax consequences. The good news is that, in most cases, there is no tax liability when your student loans are successfully discharged in bankruptcy. Unlike some forms of loan forgiveness that may be treated as taxable income, debts eliminated through bankruptcy are generally not considered taxable by the IRS. This means you can focus on rebuilding your financial future without the added burden of a surprise tax bill.
For borrowers with federal student loans from the U.S. Department of Education, the stakes are often much higher before filing. If loans fall into default, the government has powerful collection tools. These can include wage garnishment, bank account levies, and seizure of tax refunds. In some cases, the IRS can even place a lien on your property. These aggressive collection actions can create ongoing financial hardship and make it nearly impossible to get ahead.
Filing bankruptcy can provide immediate relief. The automatic stay that goes into effect as soon as a case is filed will stop garnishments, levies, and collection efforts, including those by the Department of Education. This protection gives borrowers breathing room while pursuing a student loan discharge through an adversary proceeding. The process typically takes about 6 to 9 months, during which your legal team presents evidence to the court demonstrating undue hardship.
Hishaw Law LLC helps clients navigate this complex process and fight for student loan relief through bankruptcy. The firm charges an initial non-refundable fee of $700 to get started, which covers filing the case and representing you in court, including the adversary hearing involving the Department of Justice. Hishaw Law LLC stands behind its work—if only a partial discharge is obtained, the firm will refund part of your fees, and if a full discharge is not achieved, you may be eligible for a full refund of certain fees.
If you are facing wage garnishments, tax refund seizures, or threats of liens due to student loan debt, taking action is critical. Bankruptcy may not only stop these collection efforts but also provide a path to eliminating the debt entirely—without creating new tax consequences.
