It can be difficult to cover regular living expenses when a creditor uses a wage garnishment to collect a debt. Your employer will typically take 25% of your take-home pay (more or less, depending on the type of debt).
Bankruptcy can help. Not only will filing a bankruptcy case stop many garnishment types, but it can erase other debts in the process.
Not sure which bankruptcy chapter is best for you? Start by learning the differences between Chapter 7 and 13 bankruptcy.
When you file a bankruptcy case, an injunction (court order) called the automatic stay goes into effect. The stay prohibits most creditors from taking or continuing actions to collect debts, including preventing or stopping a garnishment and erasing the underlying debt.
Although the automatic stay is a powerful tool, it's not absolute. The automatic stay might last for only 30 days if you've filed for bankruptcy repeatedly—or might not be put in place at all.
The automatic stay doesn't apply to all creditors or all types of debt. For instance, the stay won't stop a garnishment when:
Also, since domestic support obligations aren't forgiven (discharged) in bankruptcy, the creditor won't have to stop the garnishment while the Chapter 7 case is pending, and most bankruptcy courts will not order it.
By contrast, a Chapter 13 case will stop all garnishments, including those for domestic support obligations. Be aware, however, that in Chapter 13 bankruptcy, you must fully pay those obligations over a three- to five-year plan. Therefore, a garnishment will stop while the Chapter 13 bankruptcy is active and you're making your plan payments.
After you file your bankruptcy case, it can take the court a week or more to send the official case notification to all your creditors. In the meantime, to make sure that your garnishment stops quickly, you or your attorney should inform both your employer and the garnishment creditor by providing them the bankruptcy case number, filing date, and court location.
Once the creditor knows of the bankruptcy, the garnishment must stop—even if the employer hasn't received a court notification. Allowing the garnishment would violate the automatic stay.
You might be able to get back some garnished wages, but in most cases, trying to do so won't be worth the cost. It's usually better to avoid a loss by filing for bankruptcy fast.
The garnishment will need to have occurred during the 90 days before the bankruptcy filing date. It will need to exceed a particular amount (this amount changes periodically), and you'll need to be able to protect that amount with an exemption (a law that allows you to keep certain property in bankruptcy).
However, the issue is that most states don't have an exemption that protects cash—or it's minimal. Also, to recover this money, you'll have to file a lawsuit in bankruptcy court against your creditor. Whether that makes financial sense will depend on how much you stand to get back and how much your attorney will charge to file the lawsuit.
After your bankruptcy case ends, your creditors cannot resume garnishments on discharged debts, such as credit card balances, personal loans, and medical bills. But creditors can resume garnishments on nondischargeable debts because you'll remain responsible for paying them.
If the court dismisses your case without a discharge, you lose the benefit of the automatic stay, and your creditors can resume their garnishments (and other collection actions) for all debt types.