How Can Bankruptcy Help In Resolving Wage Garnishment?
On the date that you file your petition with the bankruptcy court, which is federal court, an automatic stay goes into effect. This prevents any collection action from your creditors, and this includes any calls, letters, garnishments or lawsuits that might be in process against you. All of that is frozen on the first day that your case is filed. As bankruptcy court is federal court, it is pre-emptive of anything going on in state court. So, it would be safe to say that federal court trumps state court.
There is no conflict between the state and federal courts: federal court says everything is stayed in terms of collections, and nothing is going to progress beyond this point moving forward. The garnishment is one of those collection processes that stops on the date the case is filed. The person can actually take a deep breath and move forward with their life and feel comfortable thinking that the next paycheck that they are going to get will be the full pay that they have earned. They don’t have to worry about 25% of their wages coming out or opening up their bank account to find that somebody has drained the funds.
That is the primary protection that you are getting. As your case proceeds through the bankruptcy court, at some point, you will get a discharge. In Chapter 7 you get a discharge after 90 days; in Chapter 13 it can take three to five years, depending on what your qualifications are. Once your case is discharged and you are no longer liable under the judgment, under the lawsuit or under the prior debt. So you don’t have to worry about the garnishment in perpetuity. In bankruptcy, there are what we call exemptions, and these exemptions allow you to protect your assets: including potentially the amount that was garnished from you in the 90 days prior to your bankruptcy being filed.
If you have enough exemption money to protect, then we can actually take those funds back from the creditor or the law firm that was handling the garnishment. For many clients, if they contact an attorney shortly after the garnishment starts and the case is filed, they can actually get that money back. Oftentimes the bankruptcy legal fees can pay for themselves because you are getting that garnished money back into your pocket, so it’s a very powerful tool that’s available to people; and if you are struggling with garnishment, it’s definitely something that you should be looking into.
Is Filing For Bankruptcy Guaranteed To Stop The Garnishment?
There is an excellent chance that bankruptcy will stop the garnishment, with the exception of child support, which is non-dischargeable in bankruptcy. So if you are getting garnished for child support, it would not stop that garnishment, but other than that, virtually everything under the sun would be stopped: including garnishments for tax purposes, for judgments and default judgments. Any old debts you had and things of that nature would be stopped on the date your case is filed.
Because most payroll is actually processed a week ahead of the pay date, for your next week’s paycheck after your bankruptcy may include the garnishment on it. Your employer’s payroll department will stop honoring the garnishment moving forward.
Which Chapter Of Bankruptcy Is More Suited To Resolve A Wage Garnishment Issue?
Chapter 7 and Chapter 13 work in different ways, and there are many different criteria we look at to determine which is best for each of our clients, but in terms of stopping the garnishment and the automatic stay and how it applies for purposes of wage garnishment, they both work in virtually the same way. A Chapter 13 is no better or faster to stop a wage garnishment than a Chapter 7. But there are a number of different reasons and circumstances where you might choose a 13 over a 7 or vice versa.
Will I Be Able To Recoup Any Garnished Wages?
It comes as a surprise to a lot of people that they can actually get their money back through the bankruptcy. The reason for that is the bankruptcy court is trying to accomplish two things. They want to give you a fresh start, but they also want to treat all of your creditors equally. One of the rules in furtherance of treating creditors equally is a look back at preference payments. The court considers any money paid to a creditor within the 90 days prior to the filing that is over $600 to be a preference. There are certain exemptions or defenses that a creditor can present for this, but that’s the initial assumption made by the court.
If a creditor received more than $600 from you in the three months before your case was filed, the creditor was preferred, but that doesn’t significantly affect your case. It actually empowers the court to go after the creditor for that money that was received over $600 over a 90 day period. The way the rules are written in the bankruptcy code, you can actually treat that money as an asset. If you have enough of those exemptions to protect that asset, you and your bankruptcy attorney can go after the creditor, take that money back and put it in your pocket.
For more information on Bankruptcy & Wage Garnishment, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (763) 568-7343 today.
Read more about Wage Garnishment.
Read more about Respond To The Lawsuit Notice.
Read more about The Basic Procedures For Challenging A Wage Garnishment.
Read more about An Attorney Can Help To Resolve Wage Garnishment.
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