It can be difficult to cover regular living expenses when a creditor uses a wage garnishment to collect a debt. Your employer will typically take 25% of your take-home pay (more or less, depending on the type of debt). Bankruptcy can help. Not only will filing a bankruptcy case stop many garnishment types, but it can erase other debts in the process. 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 out 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. The automatic stay doesn’t apply to all creditors or all types of debt.
For instance, the stay won’t stop a garnishment when:
• you file a Chapter 7 case, and
• the debt is for a domestic support obligation, like past due child support or alimony.
Also, since domestic support obligations aren’t forgiven (discharged) in bankruptcy, the creditor won’t have to suspend the garnishment while the Chapter 7 case is pending, and most bankruptcy courts will not order it. By contrast, a Chapter 13 case will stop all garnishments, including those for domestic support obligations. Be aware, however, that in Chapter 13 bankruptcy, you must fully pay those obligations over a three- to five-year plan. Therefore, a garnishment will stop while the Chapter 13 bankruptcy is active and you’re making your plan payments. 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 them the bankruptcy case number, filing date, and court location. Once the creditor knows of the bankruptcy, the garnishment must stop—even if the employer hasn’t received a notification from the court. Allowing the garnishment would violate the automatic stay.
Recovering Wages Garnished Before the Bankruptcy
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 have had to have occurred during the 90 days before the bankruptcy filing date. It will need to exceed a particular amount (this amount changes periodically), and you’ll need to be able to protect that amount with an exemption (a law that allows you to keep certain property in bankruptcy). The issue for most, however, 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 the 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 the Bankruptcy Ends
After your bankruptcy case, your creditors cannot resume garnishments on discharged debts, such as credit card balances, personal loans, and medical bills. But creditors can resume garnishments on non-dischargeable 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.
Wage Garnishment and Bankruptcy
Wage garnishment occurs when a court issues an order that requires your employer to withhold a portion of your paycheck and send it directly to a person or entity to which you owe money. Generally, garnishment lasts until a particular debt is fully paid off. The debts for which a wage garnishment order may be entered include child support, student loans, taxes, and any debts that have been the subject of a collections lawsuit resulting in a judgment against you and a wage garnishment order. Except in the cases of child support, student loans, and taxes, a creditor cannot garnish your wages without first suing you, winning, and obtaining a court order. If a creditor wins a lawsuit, and a money judgment is entered on its behalf, the creditor can garnish your wages by giving a copy of the court order to the local sheriff, who then sends it to your employer. Federal and state regulations govern how much of your paycheck may be garnished. Under federal law, the lower of up to 25% of your disposable earnings or the amount by which your weekly income exceeds 30 times the minimum wage may be garnished. However, in some states, a lower percentage limit is set for the amount of your wages that can be garnished. Different rules apply to child support, student loans, and taxes. Your employer may not retaliate against you because your wages have been garnished to pay off a single debt. However, under federal law, you are not protected against retaliation when more than one creditor has garnished your wages or your wages are being garnished by a single creditor for two or more debts. Some state laws provide more protection against retaliation.
Fighting Wage Garnishment
You can protest wage garnishment by filing papers and proving to the court that you need more of your paycheck to pay off your expenses or that you qualify for an exemption. If the judge will not terminate the garnishment, in some cases, filing for bankruptcy can stop wage garnishment. However, you should be aware that bankruptcy will not help stop garnishment of child support or other non-dischargeable debts. Once you file for bankruptcy, an automatic stay will go into effect. This stops most collection activities, including wage garnishments, as long as the stay is in effect. The court will notify your creditors of the stay, but if the creditors are not alerted in time to stop wage garnishment, you can give notice of the bankruptcy to your employer’s payroll department, as well as the levying officer handling the wage garnishment (in most cases, the sheriff). An automatic stay will not affect child support or alimony, since these are priority debts that are non-dischargeable. When any creditor that is affected by the stay wants to continue its collection efforts, it must prove to the court there is good cause to lift the stay. Generally, unsecured creditors that want to continue garnishing your wages cannot present good cause to get a stay lifted. Other than when the bankruptcy court lifts the stay on a creditor’s motion, an automatic stay will end when you receive a bankruptcy discharge or when the case is dismissed without a discharge. If the debt at issue was included in the discharge, the creditor will not be able to resume wage garnishment. However, if you do not get a discharge, the creditor can continue wage garnishment. In some cases, you can also recover back wages that were garnished within 90 days prior to your filing of bankruptcy, when they are over $600 altogether and you have exemptions that cover them. If you’re struggling to repay a substantial amount of debt, then you’ve likely considered bankruptcy. The automatic stay means that for the duration of your bankruptcy filing, none of your creditors are allowed to pursue their debts. This includes creditors, collection agencies, and government entities. No more phone calls, letters, or emails and definitely no more wage garnishment (except for domestic support obligations). They can’t take any actions against you due to your debt. As soon as you submit your bankruptcy petition, the court will send a notice to each of your creditors and inform them that you filed, and about the limits imposed on them by the stay.
Relief from Creditors and Debts
Almost all forms of wage garnishment are halted by an automatic stay. Even if you have multiple creditors enforcing wage garnishment on your paychecks, they can usually be stopped by filing for Chapter 7 bankruptcy and then erased if you receive a discharge. Filing for bankruptcy will not only temporarily solve your wage garnishment problems, but potentially eradicate them altogether.
Recover Lost Wages
If you are filing for bankruptcy within 90 days of the beginning of your wage garnishment, you may even be able to recover some of your lost wages. Your wages can only be protected up to a certain amount, so you likely won’t be able to recover all of your losses that occurred due to garnishment. Still, if you’re considering bankruptcy shortly after having a garnishment imposed on your earnings, you may be able to recoup some of your lost finances.
How To Stop A Wage Garnishment When You File Bankruptcy
In order to stop a wage garnishment the trustee handling your bankruptcy or consumer proposal must know the following information:
1. Your employer’s payroll contact information – this is so that they can put your employer on notice to stop the garnishee.
2. Your next payday – although a stay is automatic after filing bankruptcy, it may take your employer a couple of days to stop your garnishee. Your trustee needs to know when your next pay day is so they can tell you whether or not the garnishee can be stopped in time for your next pay.
3. The name and contact information for the creditor trying to garnishee your wages – this usually means providing a copy of the Garnishment Order or authority. If you don’t have a copy your payroll department will and if you ask for it they are required to provide you with a copy.
4. The name of the Court handling the Order – luckily this will be on the Garnishment Order you need for point 3.
5. If you have had money taken from your bank account, your trustee will also require details on the account – the bank, the branch, account number, etc.
How To Stop Wage Garnishment
People who were once reluctant about bankruptcy often change their minds once a wage garnishment starts. Embarrassment is often the first emotion, especially since employers will call you in to discuss it in more detail. After that, you experience its effects on your income and your ability to make ends meet, often making a desperate situation even worse. You likely already struggle at your current income level, now; you have even less to work with while home payments and utilities still remain due. A bankruptcy filing stops wage garnishment in its tracks and gives you control over your financial life once again. It is often the best option for people in need.
Laws and Limits Concerning Wage Garnishment
Wage garnishment occurs after a creditor enters a judgment. In order to do this, first they must file a lawsuit, serve you with a summons, and, assuming you do not answer it, file for a default judgment. That makes it possible for creditors to collect on that judgment through wage garnishment. This is not a process that happens in a vacuum or on a random whim. Many collection calls contain threats that make consumers feel they are vulnerable immediately. Making those statements is illegal and can expose creditors to liability.
Wage Garnishment for Tax Debt
For tax debt, you will receive a notice of lien before there is a garnishment. This works the same way as a judgment but without a court process. State agencies can work to collect debt much more quickly than private entities, which expose you to the impacts quicker. Garnishment starts when the creditor or government agency sends your employer a notice to withhold a certain amount of your paycheck and send it to them. This amount varies by the type of debt and fortunately, there are limits. While the limits and options can make this situation a little more bearable, the problem is that people facing wage garnishment are already struggling. Losing 25 percent of disposable income may not have a big impact for people with higher incomes but for those suffering a recent job loss and reduced wages, there is a tremendous impact on paying rent, utilities, and keeping food on the table. For clients in that situation, bankruptcy is frequently the most effective course of action. Filing bankruptcy immediately institutes an automatic stay. Once instituted, creditors cannot contact you about the debt and must put their collection efforts on hold. This includes garnishing paychecks. Any funds garnished after the bankruptcy filing date must be returned. Doing otherwise is a violation of federal law. This works even with non-dischargeable debts like student loans and tax debt. Even these priority debts cannot get past the automatic stay as it affects collection efforts, not whether the debt is discharged. However, be aware that if you have a wage order for child support obligations that will likely continue unless you work out another arrangement. Child support is in a special category, but if you are facing that withdrawal along with other wage garnishments, you will still receive needed relief. You will receive the benefits of the automatic stay whether you file a Chapter 7 or Chapter 13 bankruptcy. Besides giving you needed relief from debt, bankruptcy also takes control away from the creditors and puts it with the court. This gives you time to regroup and regain control of your finances.
Wage Garnishment After Bankruptcy
Once the bankruptcy case has been dismissed or discharged, or if the automatic stay has been lifted, wage garnishment may resume. However, if the debt was discharged during bankruptcy, then your wages can no longer be garnished for that particular debt. Most debts are discharged during bankruptcy, so it’s likely that your wage garnishments will cease. The only exceptions to this rule are domestic support obligations. Alimony and child support payments cannot be wiped out by bankruptcy. Therefore, if your wages are being garnished to pay for these obligations, then bankruptcy or an automatic stay will not end the garnishments.
Getting Legal Help for Wage Garnishment
Nobody wants their hard-earned money taken from their paycheck, but unfortunately, the law does allow it to happen in some cases. Bankruptcy can help wipe away many debts, but it is not a cure-all. If you’re facing wage garnishment, you need to understand your legal rights.
When you need legal help to stop a garnishment in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506