Bankruptcy can help stop wage garnishments. Not only will filing a bankruptcy case stop most garnishment types, but it can erase other debts in the process. Learn more about what to expect when filing for bankruptcy, including:
In addition to discovering more about how a bankruptcy filing stops creditor collection efforts, you'll want to know which debts you can "discharge" or erase in Chapter 7 bankruptcy.
A wage garnishment is a debt collection procedure that lets a creditor take money directly out of your paycheck. It can be difficult to cover regular living expenses when a creditor places a wage garnishment because your employer will typically take about 25% of your take-home pay. It could be more or less, depending on the type of debt.
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.
No, because 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.
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 the bankruptcy case number, filing date, and court location.
Once the creditor knows of the bankruptcy, a qualifying 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 occur 90 days before the bankruptcy filing date and exceed a particular amount that changes periodically. Also, 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 can't 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.
Most people find out about a wage garnishment a month or less before the withdrawals begin, so you'll likely want to file your bankruptcy case quickly. A bankruptcy attorney will be in the best position to review your case and help you decide whether it would be more beneficial to file for Chapter 7 or 13.
Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.