When a creditor starts using a wage garnishment for the purpose of debt collection, covering regular living expenses can become extremely difficult. Depending on the type of debt, an employer may typically take around 25% of an individual’s take-home pay. In this scenario, bankruptcy can be of great help. Filing a bankruptcy case will not only stop many types of garnishments, but it also helps get rid of several other debts in the process. During a bankruptcy case, most creditors are prohibited from continuing with collection actions because of bankruptcy’s automatic stay.
Understanding Wage Garnishment:
It is not possible for most creditors to garnish the wages of an individual without getting a money judgment by suing him or her. However, there are certain exceptions such as child support, taxes, and student loans. In most other cases, filing a lawsuit and winning is necessary for the creditor.
Once there is a money judgment in favor of the creditor, it can receive a court order for the garnishment of wages. The order is forwarded to the employer by sheriff or marshall. Once this happens, a portion of the individual’s wages for each pay period is held back by the employer and that amount is sent to the creditor.
It is important to note that there is a limit to the amount an employer can garnish from the employee’s paycheck per month. Using certain exemptions, it is possible for the employees to protect even more.
How to Stop Garnishment with Bankruptcy:
As soon as someone files for bankruptcy, a court order goes into effect. Known as the automatic stay, this court order or injunction immediately starts protecting the individual from his or her creditors. This stay order restricts the creditors from taking any collection related activity against the individual throughout the duration of the bankruptcy case. This includes stopping or preventing a garnishment as well as the decimation of the underlying debt.
It is true that an automatic stay is a powerful tool for stopping garnishments in bankruptcy. However, please note that it is not absolute. If someone has filed for bankruptcy repeatedly in the past, the automatic stay may not last for more than a month. In the worst-case scenario, the automatic stay may not be enforced at all.
Creditors may also try to lift the automatic stay by requesting the bankruptcy court. However, the court generally rejects such pleas unless:
- The creditor has a debt secured by a car, house, or any other collateral.
- The creditor may suffer a financial loss by waiting until the end of the case.
All Garnishments Aren’t Stopped:
Remember that the automatic stay order from the court is not applicable to all types of debt of all creditors. For example, garnishments will not be stopped by the stay when:
- A Chapter 7 case is filed.
- The purpose of the debt is domestic support obligations such as alimony, child support, etc.
As domestic support obligations are not discharged in bankruptcy, there is no need for the creditor to suspend the garnishment while Chapter 7 bankruptcy case remains pending. On the other hand, all garnishments including domestic support obligations can be stopped by a Chapter 13 case. However, note that in the case of Chapter 13 bankruptcy, the creditors must pay all obligations completely over a three- to five-year plan. Therefore, while Chapter 13 bankruptcy is active, all garnishments will stop and the creditor will make plan payments.
Stopping Garnishments Quickly:
After a bankruptcy case is filed, the court may take around a week to send the official notification of the case to all creditors. In the meantime, along with his or her attorney, the debtor should provide the bankruptcy case number, court location, and filing date to the garnishment creditor as well as the employer. The garnishment must stop as soon as the creditor is aware of the bankruptcy, even if the notification from the court has not been received by the employer.
