Potential Consequences of Declaring Bankruptcy in 2026

Say an employee's disposable earnings are $2,000.

No. Under Title III of the Customer Credit Protection Act (CCPA), you can not discharge an employee whose earnings undergo garnishment However, the CCPA does not secure employees whose revenues undergo two or more garnishments. You should begin garnishing a staff member's earnings when you get a trainee loan garnishment order.

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You can quickly set up a wage garnishment in Patriot's payroll software application. You are responsible for remitting garnishments to the appropriate companies.

New 2026 Bankruptcy Laws

The U.S. Department of Education (the Department) today announced that it will postpone the implementation of uncontrolled collections on federal student loans, consisting of Administrative Wage Garnishment (AWG) and the Treasury Offset Program (TOP). The short-term delay will allow the Department to carry out major student loan repayment reforms under the Operating Families Tax Cuts Act (the Act) to offer debtors more choices to repay their loans.

The Act decreases the number of federal student loan repayment plans, getting rid of a confusing labyrinth of alternatives and making it much easier for borrowers to choose either a single standard payment strategy or income-driven repayment (IDR) strategy that best satisfies their needs. This consists of a brand-new IDR plan that waives unpaid interest for borrowers with on-time payments whose payments do not fully cover accrued interest, which consists of small matching payments from the Department in certain circumstances to ensure that outstanding principal is minimized each month.

The delay in collections will provide defaulted borrowers extra time to evaluate these new repayment choices once they consolidate their loans or finish a repayment or rehabilitation agreement. The Act also provides borrowers a 2nd chance to rehabilitate a defaulted loan, allowing them to get their repayments back on track and get the loan out of default.

The hold-up in collections will offer defaulted borrowers additional time to begin the rehabilitation procedure, consisting of the ability to restore their loan a second time.

The Trump administration will resume garnishing incomes from student loan debtors in default in early 2026, the U.S. Education Department verified to NPR. The relocation follows a years-long time out in wage garnishment due to the pandemic. "We anticipate the first notices to be sent to roughly 1,000 defaulted debtors the week of January 7," a department representative told NPR.

Automatic Stay Stops Wage Garnishment

A customer remains in default when they have actually not made loan payments in more than 270 days. When that occurs, the federal government can try to collect on the financial obligation by taking tax refunds and Social Security advantages, and also by ordering a company to withhold up to 15% of a customer's pay.

Betsy Mayotte, the president and founder of The Institute of Student Loan Advisors, says although customers have actually expected this, the timing is regrettable. "It will accompany the increase in healthcare costs for a lot of these defaulted debtors," she said, referring to the premium increases for Affordable Care Act health insurance coverage that kick in in 2026.

Another 3.7 million are more than 270 days late on their payments and 2.7 million are in the early stages of delinquency. "We have actually got about 12 million debtors today who are either delinquent on their loans or in default," Preston Cooper, who studies trainee loan policy at AEI, told NPR.

Bankruptcy Support to Halt Garnishments

Cory Turner contributed to this story.

(Post Updated Jan. 6 and 8, 2026) This article lists federal and state consumer law changes set up to go into effect or expire throughout the duration from December 1, 2025, through January 1, 2027. Other customer law modifications will be enacted in 2026 and will go into impact in 2026; this short article notes modifications whose reliable dates have actually already been set up since December 31, 2025.