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Can You Settle A Debt After Garnishment?

Can You Settle A Debt After Garnishment?

Setting up an installment payment plan through a court order will protect your wages from being garnished. Creditors can garnish up to 25% of your wages to collect repayment for debt. Wage garnishment can make it difficult or impossible to live comfortably, reducing the amount you are able to spend on essentials like food and toiletries, utilities and bills, or supporting your family. When requesting an installment payment plan, you must detail your income and expenses to the court. You will file a Motion for Installed Payments, and a copy will be sent to your creditor, who has 14 days to approve or deny your proposed plan. A creditor can object to the motion, so make sure your payment plan is reasonable pay the highest amount you can and no less. The creditor may object to the plan if the proposed repayment period is too long. If the court denies your Motion for Installed Payments, you have several options. One is to file a new plan with higher payments. You’ll have to pay the filing fee again. However, if your plan is approved, the court will issue an Order Regarding Installment Payments. This means that, effective immediately, you will start making payments according to the Order. An Order Regarding Installment Payments should effectively stop or prevent a wage garnishment, as long as you make your payments on time. Your employer cannot legally garnish your paycheck once they’ve received this order- if they continue to do so, you can file on objection with the court. You’ll need to include a copy of your Order Regarding Installment Payments with your objection. Don’t miss a payment. If you do, a creditor can file a Motion to Set Aside the Order for Installment Payments. You’ll receive a notice from the court that the motion has been filed, and have 14 days to request a hearing to object to the motion. At the hearing, you’ll explain why you missed your payment, and how the court can be assured that future payments will be made in full and on time. Installment payment plans are just one option you have to halt a wage garnishment. You also might consider filing for exemptions with the court to reduce the amount of your wage garnishment. An automatic stay, effective immediately upon filing for bankruptcy, will stop a wage garnishment in its tracks.

How To Stop Wage Garnishment

There are several options that you can do to fight and stop wage garnishment. If you do not owe the debt, you can fight the debt collection lawsuit. An attorney can help you fight a debt collection lawsuit. You may also negotiate with a creditor to set up a payment plan directly with the creditor. In some cases, you might be able to negotiate a lump sum payment to settle the debt in full. However, lump sum payments also have drawbacks. You must have the money available to pay the creditor immediately, and the forgiven debt is typically counted as income for tax purposes. Therefore, you may owe income taxes the following year, depending on the size of the debt forgiven. Bankruptcy stops wage garnishments. If the debt is eligible for discharge (forgiveness) in bankruptcy, filing bankruptcy stops the wage garnishment and prevents the creditor from taking any actions to collect the debt, even after you complete the bankruptcy case. A no-asset Chapter 7 bankruptcy case could get rid of the debt in four to six months, if you meet Chapter 7 income requirements, and the debt is eligible for a bankruptcy discharge. If the debt is not eligible for a bankruptcy discharge, you might want to consider filing under Chapter 13. Chapter 13 is a bankruptcy repayment plan. The amount you pay through your bankruptcy plan may be less than the amount of a wage garnishment. You can estimate the amount of your Chapter 13 plan with our Chapter 13 calculator. There are many options, but the options tend to be complex in relation to costs and pros and cons of those options. You may be interested to take our Wage Garnishment Debt Relief Options Calculator below for more information about your options and estimated costs of those options. In most states, you would not pay the judgment at the court; rather, you would contact the attorney representing the judgment creditor (the credit card company that sued you) to obtain a payoff amount, and then pay to the attorney directly. Once the attorney receives your payment and the funds clear the bank, he would file a document called a “satisfaction of judgment” with the court clerk of the court in which the original lawsuit was filed. This filing will put the court clerk on notice that the judgment has been paid and should be marked as “satisfied” in the court records. The attorney for the judgment creditor would also need to contact your employer to let your employer know that the judgment has been paid and that the garnishment should be canceled. This process can take a bit of time, so if your paycheck is scheduled to be garnished during your next pay period, you may not be able to stop the garnishment in time, even if you pay the judgment. However, your employer should hold the funds for a certain period of time, the length of which varies from state to state, and your employer should return that money to you once it receives notice of the satisfaction of the judgment. When you contact the creditor’s attorney to obtain a payoff amount, you should not be surprised if the amount he asks you to pay is slightly more than the actual judgment balance entered by the court. Creditors are usually allowed to charge interest on judgments (the interest rate varies by state), as well as attorney’s fees and processing costs.

Get it in writing

Before you render payment, you may want to obtain a written statement from the creditor’s attorney to confirm that the amount he has asked you to pay will satisfy the judgment. You should also request a copy of the satisfaction of judgment for your records once payment is made. These documents will serve as your evidence if there is ever any question that you paid the judgment. In some states, the debtor is required to file a copy of the satisfaction of judgment with the court clerk’s office, so you may want to call the court clerk’s office prior to making payment to ask about your state’s procedures for satisfying judgments. Once you have a copy of the satisfaction of judgment, you can take a copy to your employer to make sure that the garnishment is stopped, though, as I mentioned above, the creditor’s attorney should notify your employer if you ask him to do so.

Lump-sum settlement

A final issue to consider is that you may be able to settle this judgment for less than the full amount owed, if the judgment creditor is willing to agree to a reduced-balance settlement. If you are interested in settling the judgment, you would need to contact the creditor’s attorney to ask if settlement is a possibility and to make a settlement offer. Some creditors are not willing to settle on judgments, but it certainly cannot hurt to ask. Settlements on judgments are usually higher than those on non-judgment accounts, but you may be able to settle this judgment for 60% to 70% of the balance owed, or possibly less. If the creditor agrees to a settlement, the steps to pay the settlement and to obtain a satisfaction of judgment would be the same as those outlined above. Since you have the money to pay off this judgment, resolving it and stopping the garnishment should not be difficult, but again you need to make sure that you have good documentation of any agreement you reach with the creditor so that you can prove to the court and your employer that the judgment has been paid in case there is any question. Charging exceptionally high interest on unpaid debt is one of the ways card issuers offset their risk. It makes their business profitable even though some debts are never recovered. But those high rates make repaying debts even harder as the amount owed can grow quickly if not paid off each month. Obviously, the best policy is to pay in full each month.

After Garnishment, Your Debt Can Still Grow

Worse still, your debt can continue to grow if the garnishment doesn’t cover the interest payments. Even your garnishment order chips away at the principal due, it might take years to get out of debt and the amount you pay will be far more than what you originally borrowed. If you served with a debt-collection lawsuit, do the following:

• Settle the debt if you can: Your creditor may prefer forgiving a portion of your debt and saving on legal fees. If you don’t have cash to put up for a settlement, consider selling an asset.
• Review your state’s laws: Laws set limits on how large garnishments can be, and they allow for exemptions. Become familiar with the exemptions and, if you end up defending yourself against a suit, file for any exemptions that might apply to you.
• File for bankruptcy protection: Bankruptcy can inflict enormous damage to your future ability to borrow, but sometimes it’s the only way out of debts that can’t be repaid. Before filing bankruptcy, review your situation with a credit counselor and an attorney.

Debt Settlement

Debt settlement, also called “debt relief” or “debt adjustment,” is the process of resolving delinquent debt for far less than the amount you owe by promising the lender a substantial lump-sum payment. Depending on the situation, debt settlement offers might range from 10% to 50% of what you owe. The creditor then has to decide which offer, if any, to accept. Consumers can settle their own debts or hire a debt settlement firm to do it for them. In the latter case, you’ll pay the firm a fee that’s calculated as a percentage of your enrolled debt. Enrolled debt is the amount of debt you come into the program with. By law, the company can’t charge this fee until it has actually settled your debt. Fees average 20% to 25%. Debt settlement may also entail tax costs. The Internal Revenue Service (IRS) considers forgiven debt to be taxable income. If, however, you can demonstrate to the IRS that you are insolvent, you will not have to pay tax on your discharged debt. The IRS will consider you to be insolvent if your total liabilities exceed your total assets. It’s best to consult a certified public accountant to determine if you qualify for insolvency status.

Debt Settlement Strategies and Risks

Ironically, consumers who enroll in a debt settlement program because they can’t manage their debt burdens but who have still been making payments, even sporadic ones have less negotiating power than those who have made no payments. So their first step must be to stop making payments altogether. “Credit scores can suffer during the debt settlement process, particularly at the beginning.” “As the consumer begins to make payments on settled debt, credit scores typically will recover over time.” Becoming delinquent on debt and settling debt for less than you owe can have a severe impact on your credit score likely sending it into the mid-500s, which is considered poor. The higher your score before you fall behind, the larger the drop. Late payments may remain on your credit report for up to seven years. Making no payments also means accumulating late fees and interest, which add to your balance and will make it harder to pay off your debt if you can’t settle. Consumers can expect harassing debt collection phone calls once they become delinquent. Creditors might also decide to sue consumers for debts above $5,000 debts that are worth their trouble, in other words which can result in wage garnishment. “The more money you have available to settle, the sooner you can resolve the debt. The longer your debt goes unpaid, the greater the risk of being sued.” There are no guarantees that after incurring this damage the lender will agree to a settlement or that it will agree to settle the debt for as little as you’d hoped.

How Do Wage Garnishments Work?

When you default on a debt, the person or company (the “creditor”) you owe can sue you for the debt. If the creditor wins the lawsuit, the creditor receives a “judgment” against you. If the creditor tries to collect by taking a portion of your wages, it is called a wage garnishment. With a judgment against you, a debt collector can freeze your bank accounts, place a lien on your home, or garnish your wages. And in Utah, a debt collector can also charge 9% annual interest on a judgement which means that you could be burdened with payments for up to twenty-seven years and a $3,000 judgment could cost more than $10,000 over a period of fourteen years. Before your wages can be garnished, a creditor must notify your employer, who will then deduct a portion of your paycheck and forward that portion of your wages to the creditor. If you’re sued for a debt or if your wages are garnished, you’ll need legal help from a good consumer attorney. You cannot ignore a debt collection lawsuit. If you do nothing, the creditor or debt collector will probably obtain a “default” judgment against you. About 90% of the people who are sued for debts do nothing in response to the lawsuits, and they are hit with default judgments. Wages can be garnished for debts that include child support and back taxes, student loans, fines, and other court-ordered obligations. Overtime wages and bonuses also may be garnished. To garnish your wages, after a creditor has acquired a default judgment against you, the creditor must inform your employer about the wage garnishment. After receiving a formal notification, your employer is then required to start garnishing your wages. Wage garnishments are a compliance burden for employers, who may deduct a service fee from each paycheck subject to garnishment. However, you cannot be disciplined, fired, or subjected to retaliation because your wages are garnished provided that only one creditor is involved. This limited legal protection is provided by federal law under the Consumer Credit Protection Act, but if more than one creditor garnishes your wages simultaneously, federal law no longer protects you, and your employer may legally terminate you. If you’re already in debt, a wage garnishment can make it even tougher to get from one payday to the next. If a creditor sues you and garnishes your wages, it’s probably time to consider bankruptcy or another practical debt relief strategy. Bankruptcy can be an effective response to a wage garnishment. After you file for bankruptcy, an “automatic stay” goes into effect that stops most creditors from garnishing your wages or taking other legal action against you. An added benefit of bankruptcy is that it takes your creditors away from your employer. However, you should understand that wage garnishments for alimony or child support are not affected by the automatic stay that is issued when you file for bankruptcy. If your debts are discharged in the bankruptcy process, and if the obligation you owe to the party garnishing your wages is included in the discharge, that creditor or debt collector may no longer garnish your wages or even contact you about the debt. Bankruptcy, however, can have negative repercussions, so it is not always the best way to respond to a wage garnishment. But, there are ways to offset the harm and people can often be in a better financial, and credit scoring, position soon after their debt is discharged in a bankruptcy. It depends on your personal financial circumstances. Sometimes, wages are garnished by mistake or even unlawfully. If a debt purchasing company garnishes your wages, for example, you may in fact owe that company nothing. A debt buying operation may claim that it purchased and owns your debt, but the company may not be able to document that claim in court. A good wage garnishment attorney will know how to handle such a case effectively on your behalf.

If you’ve already satisfied a debt, and if your wages are being garnished mistakenly, you will need to have your attorney request a hearing to prove that you’ve paid the debt and to have the wage garnishment halted. If your wages are being garnished in Utah, you have rights and options, and you’ll need to exercise them. In almost every case, the right attorney will find a way to reduce a wage garnishment or will be able to take legal action to end it.

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It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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