When faced with a debt situation, bankruptcy is presented as a viable option and even a salvation. But will bankruptcy stop wage garnishment? This and other key questions surrounding the bankruptcy process are answered in this article. Read on.
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Will bankruptcy really stop wage garnishment?
Too many bills to pay, poor management of your finances, or simply an unexpected expense due to an unforeseen circumstance, may have led you into immeasurable debt. Not only that, but creditors and lenders are calling you every day trying to get you to pay off your debts.
If you do not pay your debts and receive a monthly salary, the creditor may go one step further and petition the court for a wage garnishment. Finally, will bankruptcy stop wage garnishment? What is a wage garnishment? What does it entail? What happens to it if you file for bankruptcy? We will discuss each of these questions in detail below.
What is wage garnishment?
We know that the combination of the words “garnishment” and “wage” sounds terrible. And even more so when you have a fixed salary with which month after month you pay bills and other living expenses for you and your family. Can you imagine having your wages garnished for debt? This is something that can happen.
Wage garnishment is when there is a court order forcing the employer to withhold a certain amount of your wages to be sent directly to your creditor.
Types of debt that may qualify for a wage garnishment:
- Credit card debts from financial institutions or business houses.
- Medical bills.
- Personal loans.
- Child support and alimony.
- Student loans.
What is the wage garnishment process?
I know the information so far may be worrying you. But, be careful. Wage garnishment is not immediate when you have an unpaid debt. There is a process to it. Only when you owe money for child support, student loans or unpaid taxes does wage garnishment not require a court hearing. So if you have debts, try to pay those debts first.
Step-by-step for a wage garnishment to occur:
- The creditor or lender to whom you have not paid must sue you;
- From that lawsuit, a court hearing must be held so that a judge can order a wage garnishment;
- This does not happen behind your back. Your creditor must inform you of the hearing;
- This way, you will be able to object to the garnishment;
- If the debt is for child support, student loans or unpaid taxes, a wage garnishment hearing is not necessary.
A wage garnishment can make your financial situation worse. Especially considering that you use your paychecks month after month to pay bills, debts, and other basic living expenses. Wage garnishment has a remedy. You can stop it, reduce the amount of money garnished, or simply avoid it. How? Quite simply: by filing for bankruptcy.
Note: If you are not clear about your financial situation, I recommend that you review our article How to find out all my debts in the United States. And if you have debts and think you may be sued, read: What happens if I get sued for debt. Also find out if you can go to jail for not paying your debts.
How does filing bankruptcy stop wage garnishment?
If you are already experiencing wage garnishment, one way to stop, reduce or avoid it is to file for bankruptcy. I know what you are thinking. It’s a long and draining process. However, bankruptcy can give you a new lease on life and a chance to start fresh as a consumer.
5 things you should know if you are thinking about filing bankruptcy to stop wage garnishment
1. Advantages of filing bankruptcy
We said it a few lines earlier. Filing for bankruptcy can be a lifesaver if you are deep in debt. It can give your financial situation a second chance, because after bankruptcy you get a fresh start.
2. What can I do after bankruptcy?
Yes, you get a fresh start. Just like that. When we tell our clients this, they don’t believe it and the questions start. Can I buy a house after bankruptcy? Can I buy a car after bankruptcy? Yes and yes.
Note: Read more about what you can do financially after bankruptcy in our articles: Can I refinance my home after bankruptcy and Can I take out a personal loan after bankruptcy.
3. Consequences of Filing Bankruptcy
Filing for bankruptcy has consequences. One of them is your credit score. It will be weakened and may take time to recover. However, there are some tips you can follow to fix your credit in the United States.
4. There are types of bankruptcy
If you are considering bankruptcy to stop wage garnishment, you should know that there are six types of bankruptcy in the United States. There is Chapter 7, Chapter 11, Chapter 13, Chapter 15, Chapter 12, and Chapter 9 bankruptcy, each of which targets different segments. For example, if you are an individual then you’ll probably consider Chapter 7 or 13 bankruptcy. Keep reading and find out which one best fits your case.
5. It’s a process
Filing for bankruptcy doesn’t happen overnight. It is a process and there are steps you must follow.
Let’s take a quick look at how to file for bankruptcy in New York:
- You must have credit counseling in the six months prior to filing bankruptcy.
- You will need to take a bankruptcy means test. This is an evaluation of your financial situation, which is set out in the Bankruptcy Law of 2005, and allows you to determine whether or not your condition is suitable for bankruptcy proceedings.
- Gather all the necessary documentation.
- Filing for bankruptcy: make the application through the forms. At this stage you will know which assets will be exempt from seizure. Read more about this in our new york asset protection attorney section.
- Once the above steps have been taken, all your debts will be automatically suspended. This includes wage garnishment.
- Your debts will be in the hands of the courts or, rather, the a trustee appointed by thee court.
- The “341” meeting of creditors will be held.
- If Ch. 13 or Ch. 11, confirmation of the plan.
- You must take the second credit counseling course.
- Discharge of debt, case closed.
Note: Read and learn the difference between an executor and a trustee.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as “straight” or “liquidation” bankruptcy. It requires the debtor, in this case you, to give up assets in excess of certain limits so that you can sell them and, with that money, pay creditors.
Characteristics of Chapter 7 bankruptcy:
- The time from the time you file for bankruptcy until it is finalized takes between 3 and 6 months.
- There are exemptions, which protects assets so they will be excluded from liquidation.
- Lenders will no longer be able to take aggressive steps to collect debts from you, since you will go into an automatic stay while in the process.
- Chapter 7 does not require that you have debts of any particular amount to file for relief. Even if your case is converted to Chapter 13 you can still improve your situation by obtaining more favorable terms.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is known as a “workout” or “reorganization” bankruptcy. This means that the debtor files a plan to repay debts, or part of the debts, with their current income.
Characteristics of Chapter 13 bankruptcy:
- Creditors and lenders will have to stop all collection attempts, since while you are in the process of filing bankruptcy, you will go into automatic stay.
- Any interest or penalties on taxes will be cancelled. In the event that you have fallen behind on your taxes, you will be able to avoid penalties that the IRS may levy.
- You can save your home from foreclosure.
Note: Read more about filing for bankruptcy Chapter 7 or Chapter 13 bankruptcy. Also, learn in detail what the differences are between bankruptcy Chapter 7 vs 13.
Bankruptcy and Wage Garnishment
As we outlined in the steps of the bankruptcy process, when you file your bankruptcy case, a court order that automatically stays all debts goes into effect immediately. This stay comes from Title 11 of the United States Code.
All about the automatic stay:
Exactly when does the automatic stay begin?
- As soon as you file for bankruptcy, the automatic stay will be triggered.
- It doesn’t matter what type of bankruptcy you are filing, it can be Chapter 7 or Chapter 13.
- It applies to businesses and individuals alike.
What does the automatic stay involve?
- The creditor will not be able to call or harass you to ask you to pay your debts. For this to be effective, creditors can be notified by the bankruptcy court or through your attorney.
- It puts a stop to actions the creditor is taking to collect debts, including wage garnishment.
- If creditors or lenders do not stop collection actions, they can be held in contempt of federal bankruptcy court.
How long does it last?
- This measure will be active until you obtain a bankruptcy discharge.
- It may also end if your case was dismissed because you do not qualify for bankruptcy.
However, you should keep in mind that the automatic stay is a very powerful tool but it is not forever. The stay is only triggered while you are going through the bankruptcy filing process. Even if you have filed bankruptcy repeatedly, the automatic stay may last 30 days or not be fully implemented.
What happens to the automatic stay if you qualify for bankruptcy?
- If you obtained a discharge after filing for Chapter 7 bankruptcy, the creditor will no longer be able to garnish your wages.
- And if you successfully filed for Chapter 13 bankruptcy, the garnishment will not continue and the debt will be included in the agreed upon repayment plan.
How to stop garnishment quickly
Stopping wage garnishment is not 100 percent immediate. Once you file your bankruptcy case, regardless of which Chapter of the Bankruptcy Code you are filing under, it can take a week or more for the court to send official notice of the case to all of your creditors.
What can you do to speed up this process?
- You or your attorney can inform your creditor and/or employer that you have filed for bankruptcy.
- In order to report your bankruptcy case, please note that you must have some information: the bankruptcy case number, the filing date, and the location of the court where the petition is being heard.
Which liens will not stop bankruptcy
If you are evaluating filing bankruptcy to stop wage garnishment, keep in mind that bankruptcy will not stop garnishment for all types of debts.
Types of debt for which bankruptcy can stop a wage garnishment:
- Credit card debts from financial institutions or business houses.
- Medical bills.
- Personal loans.
Types of debt for which bankruptcy cannot stop a wage garnishment:
- Child support and alimony.
- Student loans.
Since 1988, all child support and alimony orders include an order to automatically garnish the debtor’s wages. The same is true if you owe taxes, the IRS can garnish your wages. Student loans also qualify in this category and if you fail to repay them, they can result in a wage garnishment by the Department of Education.
How to recover wage garnishments made before filing for bankruptcy
Perhaps before you decided to file for bankruptcy, you suffered for a few months from a so-called wage garnishment. A common question we get asked by our clients is whether they can recover wage garnishments that were filed prior to filing bankruptcy. And the answer is simple: it is possible.
However, it is worth noting that it is not worth doing so in all cases. In fact, it is advisable to avoid the loss by filing for bankruptcy as soon as possible.
When can wage garnishments be recovered?
- The garnishment must have occurred 90 days prior to the date of filing for bankruptcy.
- The amount garnished must exceed an amount, which changes periodically.
- That amount must be protected in an exemption, i.e., a law that allows you to keep certain property while you are in bankruptcy.
- If you want to recover that money, you must sue your creditor in bankruptcy court.
What happens to wage garnishment after bankruptcy?
When the bankruptcy case is over, creditors or lenders will not be able to resume garnishments on debts that have been discharged. These include credit cards, personal loans and medical bills. However, creditors can resume garnishments on non-dischargeable debts, since you will still be responsible for paying them.
And in the event that your bankruptcy filing is dismissed by the court, the automatic stay will stop. This means that creditors will be able to resume wage garnishments immediately and regardless of the type of debt.
Note: See also our article to learn how does bankruptcy clear medical debt.
Other ways to stop wage garnishments
As noted above, filing for bankruptcy may be the solution to stop wage garnishment. However, it is not the only way. Here are some other methods.
1. Financial Hardship
Bankruptcy stops wage garnishment, however, there is a way to limit it. This is by filing a petition with the court in which you let the judge know that you need your paycheck to cover basic expenses for you and your family. In essence, you are pointing out to the court that the wage garnishment is causing you even more financial hardship.
A trustee is also presented as an option to stop wage garnishment. In some states you can ask the court to appoint a trustee to pay your creditors based on a one-time payment you will make to your trustee. While this is in process, your creditors will not be able to garnish your wages.
You can ask the court to stop the wage garnishment if it qualifies for an exemption. In the United States, depending on the state, there are wage garnishment exemption laws. This requires you to submit an exemption form to stop the garnishment. Some states allow exemptions for debtors who have suffered wage garnishment and have recently received government assistance, such as food stamps or medical assistance.
4. Creditor default
There are times when creditors take more money out of paychecks than they are actually allowed to take by law. In that regard, it is worth mentioning, that federal law states that:
- Creditors can only garnish less than 25% of your disposable income (your gross income minus legally required deductions).
- Less than the difference between your disposable income and 30 times the U.S. minimum wage.
- A higher percentage of your wages can be garnished for child support and alimony debts, both of which can be garnished automatically.
If you believe that your creditor is violating the law and that your wage garnishment is outside the law, you should seek the advice of an attorney. In that regard, do not hesitate to contact our New York business lawyers.
Note: Read our article on debt consolidation versus bankruptcy.
How to prevent your creditor from filing a wage garnishment.
This is not a difficult task, but it does require good financial management. Specifically, you will need to be very organized.
- Be aware of your debts on all sides. From personal credit card debts, medical debts, student debts, child support if you have children and so on.
- Constant communication with your creditors and lenders. This will be crucial, as any debt you have will not take you by surprise.
- Even if you cannot pay your debts because you cannot afford to do so, we recommend that you keep in contact with your creditor, as together you can find a solution.
- In the event that your creditor has already sued you and obtained a garnishment order against you, it is likely that you will receive a “demand letter” requesting that you voluntarily pay the debts before the wage garnishment begins. Once you receive that letter, it is in your best interest to respond and negotiate voluntary payments. This may prevent the garnishment from taking place.
Why Hire the Attorneys at Ortiz & Ortiz?
Continuing to work to pay debts and suddenly having your wages garnished can be a very distressing situation. As we have pointed out throughout this article, there are solutions. One of them is to file for bankruptcy.
Contact us as soon as possible! It is important that we can advise you from the beginning and, together, make the right decisions. Our lawyers are ready to accompany and advise you at all times.
- First of all, they will make a study of your current financial situation.
- Our lawyers will analyze how serious your situation is and what options are available to you.
- You will see, together with the attorney, if you should file for any chapter of bankruptcy and which one is the most convenient for you.
- In that line, our attorneys will guide you on what steps to take. Whether it is to protect you from creditors, stop wage garnishment, file for bankruptcy and others.
For these and other services contact us today.