Wage Garnishment, a last-ditch effort at debt collection, hits debtors where it hurts: their ability to pay the weekly and monthly bills. Wage garnishment is when a court issues an order requiring your employer to withhold a certain amount of your paycheck and send it directly to the institutions to whom you owe money, until that debt is paid off. This may come at a time when a debtor is obviously cash strapped and needs financial assistance. This withholding of one’s pay can make it just that much harder to make ends meet and is often the last act by a creditors for the millions of people who finally decide to file for bankruptcy annually.
Once wage garnishment has begun and the pain of a smaller paycheck is felt, many people begin to look into bankruptcy and how it may help stop wage garnishments. While there are limits to how far the wage garnishment can go, bankruptcy may be another option to resolving the financial stress. Let’s take a closer look at wage garnishments and the impact bankruptcy may have on the process.
Chapter 7 Bankruptcy and Wage Garnishment
When a debtor files for Chapter 7 bankruptcy, the law immediately begins protecting him/her from creditors by imposing an automatic stay. The stay prohibits creditors from taking any collection activity against you during your bankruptcy case. This includes those harassing phone calls and letters! Because a wage garnishment is a collection action, wage garnishments must stop once you file for bankruptcy. The automatic stay goes into effect immediately upon the filing of your case. It is “automatic” in that it doesn’t require getting a court order or a hearing, but rather is made effective by the very act of filing your bankruptcy petition.
There are exceptions to the garnishment rules. Garnishments and withdrawals from your paycheck for ongoing child or spousal support are different. Those would continue regardless of your bankruptcy filing. In addition, a garnishment not for ongoing monthly support but rather for previously unpaid back support also continues regardless of a Chapter 7 filing. However, this kind of garnishment is stopped by a Chapter 13 filing (and cannot be resumed as long as you meet some conditions).Talk with your bankruptcy attorney about what is and isn’t subject to wage garnishment.
Post Discharge of Bankruptcy
After a bankruptcy case has ended or has been discharged the automatic stay ends. What happens, then, to the garnishments? If you receive a discharge and the underlying obligation for the wage garnishment (such as credit card debt) was included in the discharge, the creditor cannot resume the garnishment to collect the debt after bankruptcy. If your case gets dismissed without a discharge, then the creditor can continue the wage garnishment after dismissal.
Recovering Wage Garnishments
Consult your bankruptcy attorney to find out if you meet certain conditions that may allow you to get back some of your wages, even if they were garnished before bankruptcy. You can usually get back wages garnished within the 90-day prior to your bankruptcy filing if they were over $600 in aggregate and you have enough exemptions to cover them.