Can Bankruptcy Stop Wage Garnishment?

Filing for bankruptcy stops wage garnishment through a court order called an automatic stay. This takes effect the moment you file bankruptcy and prohibits creditors from garnishing your wages or pursuing other collection activities. Although most types of debt collection are halted through bankruptcy, garnishment continues for child support, alimony, and certain tax debts.

If you have a money judgment resulting in a wage garnishment that is preventing you from paying your other debts, bankruptcy can stop garnishments and discharge some of your debt. If you’re facing bankruptcy and unsure how to proceed, consider discussing your debt relief options with a bankruptcy attorney before filing.

How Bankruptcy Stops Wage Garnishment

When you file for bankruptcy, an automatic stay goes into effect. This stay 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 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 triggers the moment you file bankruptcy, no matter which type you file. It applies to both businesses and individuals.

Creditors must stop garnishing your wages and other collection activities as soon as they receive notification from the bankruptcy court or your lawyer. The federal bankruptcy court can charge creditors with contempt if they do not pause their collection actions.

Certain types of debt can still be garnished during the automatic stay. High-priority, non-dischargeable debts, such as child support and alimony/spousal support, must be paid during the automatic stay.

In Chapter 13 bankruptcy, a special automatic stay provision protects co-debtors from collection efforts, such as co-signers on loans. Creditors can ask the court to allow wage garnishment to continue through a Motion for Relief from Automatic Stay.

How Long Does the Automatic Stay Last?

In a Chapter 7 bankruptcy, the automatic stay lasts until you receive a bankruptcy discharge or your case is dismissed. Once you get the discharge, any creditors not included in the discharge may resume garnishing your wages.

In a Chapter 13 bankruptcy, you will create a repayment plan that includes the one garnishing your wages. As long as you keep your payments current, the creditor cannot garnish your wages. Once you finish the plan, in three to five years, the remaining debt is discharged, and the wage garnishment is over. Student loans and other non-dischargeable debt can continue to be garnished during a stay if the creditor wins a motion for relief from the stay.

Creditor Violation

Sometimes, creditors take more money from paychecks than they are legally allowed to. Federal law states that creditors can only garnish the lower of:

• 25% of your disposable earnings, which is your gross income minus any legally required deductions
• The difference between your disposable earnings and 30 times the federal minimum wage

Child support and alimony debts can garnish a significant percentage of your wages. 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.

There’s a chance that the creditor may be in violation of the law. You could stop the process if they did not follow the correct procedure in seeking wage garnishment, such as not notifying you properly of the lawsuit or hearing. If creditors attempt to garnish your wages during the automatic stay or the repayment plan, it is unenforceable. Courts will not issue an order to garnish wages while a debtor has a stay in place.

What Is Wage Garnishment?

Wage garnishment means a court order instructs your employer to send a certain amount of money from your paychecks directly to your creditor. Funds can also be directly taken from your bank account. Creditors can use these funds to collect different types of debt, including:

• Credit card debt
• Medical bills
• Personal loans
• Child support and alimony
• Student loans
• Taxes

Your creditor must sue you over the debt. A court hearing and judgment must occur before a judge can order your employer to garnish wages. Your creditor must also inform you of the hearing and allow you to oppose the garnishment.

In most states, child support and some types of alimony or spousal support are automatically deducted from the payor’s wages when the support agreement is finalized. Student loan payors who have not defaulted on their loans can pay by automatic payment or wage deduction.

Types of Garnishment Bankruptcy Can Stop

Bankruptcy cannot end all types of wage garnishment. The automatic stay temporarily stops all collection actions, but creditors can resume some. Debtors should keep in mind that the automatic stay provides only some breathing room, even in a Chapter 7 bankruptcy. The stay stops eviction, immediate garnishment, repossessions, and foreclosures.

Bankruptcy can eliminate:

• Credit card debt, medical bills, and some personal loans
• Civil judgments and court-ordered garnishments
• Deficiency balances after repossessions and foreclosures
• Some types of tax debts

These can be confusing to understand. If you have any doubts, consider speaking with a bankruptcy attorney.

Types of Garnishment Bankruptcy Cannot Stop

After your bankruptcy, your creditors can continue garnishing your wages. In some instances, they may be able to resume during the process. These can include:

• Child support and alimony
• Criminal restitution, fines, and court costs
• Recent tax debts
• Tax levies, which must be lifted through a separate court action
• Student loans, which can resume after the bankruptcy

Bankruptcy will not magically discharge all of your debts.

Garnishment in Chapter 7 vs Chapter 13

Ending wage garnishment works differently depending on whether you file a Chapter 7 or a Chapter 13. The purpose of each type of bankruptcy filing differs.

In a Chapter 7, also called a liquidation bankruptcy, the purpose of the bankruptcy is to discharge (eliminate) your unsecured debt and pay off as many of your secured creditors as possible by selling your non-exempt assets. Wage garnishment stops when the debt is discharged, and you no longer need to pay your creditors.

In a Chapter 13, also known as a reorganization, your debts are consolidated into a three- to five-year payment plan. The payment plan includes the same creditors who were garnishing your wages, so the garnishment amounts become part of the payment plan. As long as you stay current with your payment plan, the creditors cannot resume garnishing your wages. At the end of the payment plan, your debts are all paid off, and any deficiency is usually discharged.

The end result is that your wages are no longer being garnished. The route to get there depends on the bankruptcy chapter.

Other Ways To Stop Wage Garnishment

Bankruptcy is not the only way to stop wage garnishment. You can take many steps to eliminate or reduce wage garnishment, such as:

• Economic Hardship: You can limit wage garnishment by petitioning the court and letting the judge know that you need more of your paycheck to cover your basic expenses
• Trusteeship: In some states, you can ask the court to appoint a trustee who will pay your creditors based on one lump payment you make to the trustee
• Exemption: Wage garnishment exemption laws exist at the state level and may allow exemptions for people receiving government assistance, such as food stamps or medical assistance
• Debt Counseling: 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, but be wary of for-profit debt relief companies charging fees for a service that might not get you the desired results

Dealing with wage garnishment is not something to take chances on. Meeting with a bankruptcy attorney may be your wisest option.

Recovering Previously Garnished Wages

Bankruptcy lets you recover some garnished wages, but you must act quickly. You cannot recover all garnished wages, as child support and other garnishments not affected by bankruptcy are not available.

You can recover any wages taken within 90 days of the bankruptcy filing if the total amount of garnished wages exceeds $600. You must show that these wages are exempt, meaning they are protected by state or federal law. If the employer has withheld your wages but has not sent them to the creditor, they must return them to you when they get notice of your filing.

If the creditor has received payment and refuses to repay you, either you or your attorney may need to file an adversary proceeding to receive payment. In cases where the total amount of your garnished wages is small, it may cost more to recover them than you will get back. Your attorney can explain the costs and benefits of an adversary proceeding.

After You File

Although the automatic stay legally stops all collection activity against you, you should take some proactive steps to get your wage garnishment ended. Once you file, you’ll receive a certified copy of the bankruptcy documents with a case number and filing date. You should send a copy to your employer’s payroll or HR department so that any garnishments will stop.

If there are judgment liens or levies against you through the sheriff’s or marshal’s office, you should ask your attorney to inform them of the bankruptcy filing. The stay places foreclosure and eviction proceedings on hold, but you can notify the sheriff’s office as well.

If Your Case Is Dismissed

If your bankruptcy is discharged, the wage garnishments also end. If your case is dismissed, any stays end, and your creditors can reactivate the garnishments. They may or may not do that. Some will automatically restart. In other cases, the creditor may need to re-file their claim. Any garnishments that were not affected by your bankruptcy, such as child support, and debts not dischargeable in bankruptcy, like student loans, will continue whether your case is dismissed or discharged.

Do I Need a Lawyer To File for Bankruptcy?

If wage garnishment is causing you financial stress, it’s normal to wonder if filing for bankruptcy is a good option. This important decision is best approached with the guidance of an attorney familiar with bankruptcy forms and bankruptcy law.

Bankruptcy can give people a fresh start. However, it also damages your credit score, and many debt situations do not qualify.

You don’t need a lawyer to file for bankruptcy, but it’s a complex legal process with many strict requirements. At the very least, a bankruptcy attorney can provide critical legal advice to help you understand which type of bankruptcy to file for and which of your debts may be dischargeable. If you have questions about wage garnishment, wage garnishment orders, or similar inquiries, contact a bankruptcy lawyer today.

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