Wednesday, January 15, 2014

Student Loan Wage Garnishment Hardship Exemption

Both 34 CFR §34.24 - §34.25 and 11 KAR 3:100 provide for a financial hardship exemption in administrative wage garnishments of, respectively, (1) defaulted student loans made directly by the U.S. Department of Education and, (2) defaulted student loans guaranteed by the Kentucky loan insurance program, the Kentucky Higher Education Assistance Authority.

Ordinary consumer student loans subject to judicial wage garnishments under Kentucky law do not have any similar hardship exemption expressly authorized by statute or judicial precedent, that I have found.

I have previously suggested (see: Inventing a Kentucky Wage Garnishment Hardship Exemption) that such an equitable hardship exemption might be implicit in Kentucky's judicial wage garnishment statute, KRS § 427.010(2).

All the world needs now is for some brave soul to put it to the test.

34 CFR § 34.24 - Claim of financial hardship by debtor subject to garnishment, provides in relevant part:
"(a) You [the student loan debtor] may object to a proposed garnishment on the ground that withholding the amount or at the rate stated in the notice of garnishment would cause financial hardship to you and your dependents. (See § 34.7)
"(b) . . .
"(c) . . .
"(1) You bear the burden of proving a claim of financial hardship by a preponderance of the credible evidence.
"(2) You must prove by credible documentation —
"(i) The amount of the costs incurred by you, your spouse, and any dependents, for basic living expenses; and
"(ii) The income available from any source to meet those expenses.
"(1) We consider your claim of financial hardship by comparing —
"(i) The amounts that you prove are being incurred for basic living expenses; against
"(ii) The amounts spent for basic living expenses by families of the same size and similar income to yours.
"(2) We regard the standards published by the Internal Revenue Service under 26 U.S.C. 7122(c)(2) (the ‘‘National Standards’’) as establishing the average amounts spent for basic living expenses for families of the same size as, and with family incomes comparable to, your family.
"(3) We accept as reasonable the amount that you prove you incur for a type of basic living expense to the extent that the amount does not exceed the amount spent for that expense by families of the same size and similar income according to the National Standards.
"(4) If you claim for any basic living expense an amount that exceeds the amount in the National Standards, you must prove that the amount you claim is reasonable and necessary. "
The corresponding part of the Kentucky Administrative Regulation, 11 KAR 3:100(6), starts off simple and shifts from the general to the specific, and then . . .
"(a) If the debtor asserts as a defense a claim that withholding of his disposable pay would constitute an extreme financial hardship, the debtor shall submit documentation of all available resources and actual expenses and shall have the burden of demonstrating the necessity of actual expenses.
" (b) The hearing officer shall compare the debtor's available resources and the necessary expenses and current debt obligations of the debtor and debtor's dependents. The hearing officer shall determine that extreme financial hardship exists if the debtor currently is not able to provide at least minimal subsistence for the debtor and debtor's dependents that could be claimed on a federal income tax return. The hearing officer shall consider as available resources of the debtor income of the debtor, the debtor's spouse, and debtor's dependents from all sources, including nontaxable income and government benefits, expenses paid on behalf of the debtor by another person, and the cash value of any current liquid assets, such as bank accounts and investments. The hearing officer shall consider the claim of extreme financial hardship in accordance with the presumptions established in this paragraph.
"1. Withholding of an amount of disposable pay shall constitute an extreme financial hardship if:
"a. The debtor resides in the District of Columbia or a state other than Alaska or Hawaii and the debtor's available resources do not exceed the applicable poverty guideline, multiplied by 125 percent, based on the debtor's family size:"
 . . . . and, then it gets way too complex to easily summarize or excerpt You'll just have to read it for yourself. This much of it indicates that one living below 125% of the poverty level cannot have his or her wages garnished by a state administrative proceeding to satisfy a student loan debt, upon proper application and proof.