Wage Garnishment and Bankruptcy
When people consider filing for bankruptcy, it is usually after their creditors start hounding them to repay outstanding debts. The debts might be too much for the individual to handle, and so the individual fails to make payments. This forces the creditor to seek legal action. One way that creditors try to recover outstanding debts is to obtain a wage garnishment order against the debtor.
How Does Wage Garnishment Work?
A wage garnishment is when your creditor obtains a wage garnishment order, sometimes also called a wage attachment or wage withholding, against you by going to court and obtaining a judgment against you. Your creditor must sue you in court and obtain a money judgement against you in order to become a judgement creditor. Once your creditor has a judgement against you, they can provide the garnishment order to your employer. Your employer is then obligated to withhold a portion of your earnings and send the withheld amount of your pay to your creditor.
There are a few creditors who do not have to seek a judgement against you in order to have your wages garnished. These creditors include:
- Agencies tasked with collecting child or spousal support from you.
- Collectors who are collecting on overdue federally-backed student loan repayments.
- Tax agencies to which you owe back taxes.
Wage garnishment can place a lot of stress on a debtor, and money is often tight before garnishments are put into place. The stress of wage garnishment can push debtors into filing for bankruptcy.
How Does Bankruptcy Help Stop Wage Garnishment?
When an individual files for bankruptcy, an automatic stay goes into effect which puts a stop to many of the collection efforts of creditors. The collection efforts that are stopped by an automatic stay are laid out in 11 U.S.C. Section 362(a), while the collection efforts that are generally not stopped by a stay are described in 11 U.S.C. Section 362(b).
As part of filing for bankruptcy, you are required to provide a list identifying all of your creditors to the court, with their contact information. The court will then notify your creditors of your bankruptcy filing. Upon being notified of your pending bankruptcy, your creditors are responsible for stopping their wage garnishment efforts.
If the debt that was causing your wages to be garnished is discharged in bankruptcy, then the wage garnishment will be over. However, if the debt is not one that is discharged in the bankruptcy, once your bankruptcy has concluded, the wage garnishments will startup again.
Bankruptcy Might Not Be Your Only Option For Stopping Wage Garnishment
There might be other ways to put a stop to wage garnishment, and you should consult with a bankruptcy attorney to determine if an option besides bankruptcy might be a good choice for you. Some ways you might be able to stop wage garnishment include:
- Certain legal exemptions could reduce the amount that creditors are able to garnish your wages.
- A debt counselor might be able to help you put a stop to wage garnishment.
- Entering into a voluntary repayment plan with your creditor, as opposed to going with a forced wage-garnishment approach.
- Objecting to the garnishment might lead to getting the garnishment reduced or even terminated.