Dealing with bankruptcy is something that can be stressful for many people due to the stigma associated with filing for bankruptcy. However, sometimes bankruptcy is necessary for individuals to regain control of their financial situations and reconcile any debts that may be holding them back.
Our article gives you more information about bankruptcy in relation to wage garnishment and whether or not filing for bankruptcy will stop any garnishment on your accounts.
What Is Wage Garnishment?
Wage garnishment is typically the result of a court order that requires your employer to send a specified amount of money from your regular paychecks directly to a creditor. There are many situations in which garnishment might be an option, such as credit card debt, medical bills, child support and alimony payments, taxes, and student or personal loans.
In most cases, wage garnishments occur after the creditor has taken you to court to sue you over the debt you owe. This happens if you have gone a long period without paying the debt or making a payment plan with the creditor. Before wage garnishment can start, your creditor will need to make you aware of the lawsuit so you may show up and oppose the garnishment, and the creditor will need to receive a successful judgment against you for garnishment.
It’s important to note that a court hearing or lawsuit is likely not necessary if the debt being pursued is unpaid child support, taxes, or student loans. Wage garnishment can be difficult to deal with, especially if an individual is already struggling with their finances, so it’s important to avoid this occurrence or file to stop wage garnishment when possible.
Does Bankruptcy Stop Garnishment?
Bankruptcy is often an option for individuals who are dealing with wage garnishment or serious debt and financial issues to regain control of their finances. If you file for bankruptcy, an ‘automatic stay’ is put into place on your accounts that stops wage garnishment and prevents creditors from seeking additional garnishment judgments against you.
While your bankruptcy case is in progress, creditors, collection agencies, and even select government entities will not be able to pursue you for your debts. This is done to give you time to organize your finances and get ready for your bankruptcy case in which your petition, debts, assets, and income are evaluated.
Understanding the Bankruptcy Automatic Stay
There are two main types of bankruptcy to file – Chapter 7 and Chapter 13 – and they both result in an immediate automatic stay on your account. The automatic stay puts a stop to wage garnishment, collections activities, and even evictions in some cases while your bankruptcy case proceeds and the court overlooks your information. Chapter 13 bankruptcy also has a provision that protects co-signers and co-debtors from dealing with garnishments or debt collection activities.
Entities that do not cease collections or garnishment activities on your accounts may be found in contempt of bankruptcy court. However, creditors do have the option to ask the court for continued garnishment during bankruptcy proceedings, something which may be granted if they show a good reason for it; most creditors are not able to prove this, but you should be aware it is a possibility.
It’s important to note that child support and alimony payments that are being garnished will still be garnished during bankruptcy proceedings due to them being considered high priority.
An automatic stay on your account will last the duration of your bankruptcy case with Chapter 7 bankruptcy until you are awarded a bankruptcy discharge or your case is dismissed because you don’t qualify for bankruptcy. If you are granted a bankruptcy discharge that included the debts your wages were being garnished to pay, creditors will be forced to cease garnishment. If the discharge did not include those specific debts, garnishment will start again after your bankruptcy proceedings are concluded.
With Chapter 13 bankruptcy, any debts will be included in a repayment plan that is worked out throughout the bankruptcy proceedings. Garnishment will not continue as long as you stick to the debt repayment plan, though some debts that did not reach a settlement during bankruptcy proceedings may continue to be garnished; this depends on your specific situation and bankruptcy proceedings.
Can You Stop Wage Garnishment Other Ways?
There are other ways that you might be able to stop wage garnishment besides bankruptcy. Make sure to review your options and decide which route might be the best for your needs.
Petitioning for economic hardship lets a judge know that you need more of your paycheck to cover basic living expenses. This is typically a result of wage garnishment causing economic hardship, and you will need to prove this to the court to be awarded reduced garnishment or a stop in the garnishment.
Trustee ship involves asking the court to appoint a trustee that pays any creditors or debts on your behalf. This is based on a lump sum payment you make to the trustee, and while your debts are being handled in trusteeship, creditors aren’t allowed to continue garnishment.
Some states provided varying exemptions from wage garnishment and you may be able to ask the court to stop wage garnishment because you qualify for one. You will most likely need to receive other government assistance such as food stamps or medical care assistance to be eligible for an exemption and put a stop to your wage garnishment. Consult with a lawyer and research specific state laws to see which garnishment exemptions apply in your state.
In some cases, creditors may take more money out of your paycheck than they are legally allowed to be taking. If you suspect this is the case, you will need to consult with state laws and a local lawyer before asking the court to stop garnishment or reduce it to a legal amount.
Creditors may also be found in violation of the law if they did not follow proper court proceedings before engaging in wage garnishment. Garnishment will likely be stopped if your creditor is found to be illegally conducting garnishment.
American Consumer Credit Counseling
American Consumer Credit Counseling is a non-profit credit counseling agency that helps individuals get a handle on their debts and negotiate settlements with creditors. They can help you enter payment plans to pay your debt off over time and put a stop to garnishment, because your creditor will have agreed to be in a debt re-payment program with you.
Many organizations offer similar services, and it’s important to choose a debt counseling service that is legitimate and not a for-profit service that charges you a fee without giving you the desired debt management results.
Avoiding Wage Garnishment and Bankruptcy
Avoiding wage garnishment and bankruptcy may be difficult, as you will need to put in lots of effort to stay in contact with creditors, pay off all debts, and enroll in payment plans to avoid collections agencies or wage garnishment to occur.
Keep on top of your personal records (ideally through something like Information.com’s thorough public records search), respond to any notices that state a garnishment case is being filed against you, and try to communicate with creditors when possible to avoid wage garnishment. That being said, don’t be afraid to file bankruptcy or consult with a bankruptcy lawyer if you need further assistance organizing and getting a hold on your financial situation.