Ask a Lawyer: Can Bankruptcy Stop Wage Garnishment?
Yes, filing for bankruptcy can stop wage garnishment. This article will explain what wage garnishment is, how bankruptcy can stop it, and what other options you have to protect your paycheck.
What Is Wage Garnishment?
Wage garnishment means there is a court order telling your employer to send a certain amount of money from your paychecks directly to your creditor. It can be used to collect various types of debt, including:
- Credit card debt
- Medical bills
- Personal loans
- Child support and alimony
- Student loans
Generally, your creditor has to sue you over the debt and a court hearing has to take place before a judge can order wage garnishment. Your creditor also has to make you aware of the hearing and give you the chance to oppose the garnishment. However, a court hearing is not needed if the debt is for unpaid child support, student loans, or taxes.
Wage garnishment can make a bad financial situation even worse for people who depend on every bit of their paychecks to get by. Thankfully, there are several different ways to stop wage garnishment, lower the amount being garnished, or avoid it in the first place.
Bankruptcy Generally Stops Wage Garnishment
Some people facing wage garnishment and other serious debt problems look to bankruptcy to regain control of their finances. Filing for bankruptcy stops most wage garnishment and also prevents creditors from seeking new garnishment orders against you.
This is because when you file bankruptcy, an automatic injunction called an "automatic stay" is put into place. The automatic stay comes from the U.S. Bankruptcy Code and prevents creditors, collections agencies, and even some government entities from pursuing you for the debts you owe while your bankruptcy case is in progress.
The main purpose of the automatic stay is to give you some time and breathing room while the trustee overseeing your case looks over your bankruptcy petition, debts, assets, and income.
When Does the Automatic Stay Begin?
The automatic stay is triggered the moment you file bankruptcy, no matter which type of bankruptcy you file for, and it applies to both businesses and individuals.
Creditors have to stop garnishing your wages and other collection activity as soon as they are made aware of the bankruptcy, either by notification from the bankruptcy court or by notification from your lawyer. If they do not stop collection actions, they can be charged with contempt of federal bankruptcy court.
Certain kinds of debt can still be garnished during the automatic stay because they are high priority and non-dischargeable such as child support and alimony.
In Chapter 13 bankruptcy, there is a special automatic stay provision that also protects co-debtors, such as co-signers on loans, from collection efforts.
Creditors have the option to ask the court to allow wage garnishment to continue if they can show that there is good cause (a good reason) to continue garnishing. Most of the time, creditors with unsecured debt are not able to prove this.
How Long Does the Automatic Stay Last?
The automatic stay is in effect until you get a bankruptcy discharge or your case is dismissed from bankruptcy because you do not qualify. If the debt was part of the Chapter 7 discharge, the creditor cannot continue garnishing your wages. If you did not get a discharge of the debt, wage garnishment can continue.
If you filed for Chapter 13 bankruptcy, the debt should be included in your repayment plan (unless it's a student loan or debt), so wage garnishment should not continue. Garnishment may continue for student loan debt unless you reach a settlement.
Other Ways to Stop Wage Garnishment
Bankruptcy isn't the only way to stop wage garnishment. There are many different steps you can take to eliminate or reduce wage garnishment.
One way you can limit wage garnishment is by petitioning the court and letting the judge know that you need more of your paycheck to cover your basic expenses because the wage garnishment is causing economic hardship.
In some states, you can ask the court to appoint a trustee that will pay your creditors based on one lump payment you make to the trustee. While in trusteeship, creditors are not allowed to garnish your wages.
You can also ask the court to stop wage garnishment because you qualify for an exemption. Wage garnishment exemption laws exist at the state level, so check out the laws of your state. Most states require you to submit an exemption form in order to stop garnishment. Many states allow wage garnishment exemptions for people who have recently received government assistance such as food stamps or medical assistance.
Sometimes creditors take more money out of paychecks than they are legally allowed to take. Federal law states that creditors can only garnish the lower of:
- 25% of your disposable earnings (your gross income minus any legally required deductions); or
- the difference between your disposable earnings and 30 times the federal minimum wage.
A larger percentage of your wages can be garnished for child support and alimony debts.
Some states also have laws allowing for less of your paycheck to be subject to wage garnishment, so check out the laws of your state.
Finally, the creditor may be in violation of the law, and the garnishment could be stopped, if they did not follow the correct process in seeking wage garnishment, such as by not notifying you properly of the lawsuit or hearing.
A non-profit consumer credit counseling service (CCS) may be able to help you avoid wage garnishment by negotiating a settlement with your creditor in which you pay off your debt over time. Be cautious of for-profit debt relief companies that charge fees for a "service" that might not get you the results you want.
Finally, you might be able to recover wages that were previously garnished within 90 days of filing for bankruptcy as long as the wage garnishments added up to $600 or more and you exempted the wages in your bankruptcy filing.
You can find out all of the ways available to you for stopping wage garnishment by meeting with a bankruptcy lawyer in your area.
How to Avoid Wage Garnishment
The best way to avoid wage garnishment is to stay on top of your debts and in communication with your creditors. Even if you cannot afford to keep making payments, stay in contact with your creditor and try to work out a solution.
If your creditor has already sued you and gotten a garnishment order against you, they will likely still send you one more "demand letter" asking you to pay voluntarily before the garnishing begins. It is a good idea to respond to this letter and negotiate voluntary payments. Creditors don't like going through the expense and headache of wage garnishment, so they are often willing to work with you.
Do I Need a Lawyer to File for Bankruptcy?
If wage garnishment is causing you serious financial stress, you may be wondering if filing bankruptcy is a good option for you. Deciding whether to file for bankruptcy is a very important decision that should be made with the guidance of an attorney in your area.
Bankruptcy can give people the opportunity to start over with a clean slate. However, it also has a damaging effect on your credit score, and many people do not qualify.
You are not required to have a lawyer in order to file bankruptcy, but bankruptcy is a complex legal process that has many strict requirements, so it's best to get a lawyer's help. At the very least, a bankruptcy attorney can help you understand which type of bankruptcy to file for and which of your debts may be dischargeable.