Using Chapter 7 bankruptcy to stop wage garnishment
Filing for Chapter 7 bankruptcy will stop wage garnishments, with limited or few exceptions. If your wages are being garnished, or you fear that they soon will be, the filing of Chapter 7 bankruptcy will stop these wage garnishment in most cases. This is because the filing of a bankruptcy triggers an “Automatic Stay” which prohibits most creditors from continuing collection actions.
Read on to learn more about wage garnishments, when and how the automatic stay in Chapter 7 bankruptcy will stop wage garnishments, and what happens once your case is discharged.
What is Wage Garnishment?
Most creditors can not garnish your wages without first suing in court and obtaining a judgment. There are some exceptions, such as student loans and taxes owed to governmental entities. Once the creditor has a judgment and time for filing an appeal has passed, they may begin the garnishment process. The sheriff or Marshall serves the garnishment papers on your employer, which instructs your employer to deduct up to 25% of your paycheck and send that amount to the creditor or court. There are limits to the amount the company can garnish your pay each pay period. You can get more information in our article on wage garnishment laws.
Chapter 7 bankruptcy and the “Automatic Stay”
When you file for Chapter 7 bankruptcy, federal law immediately protects you from creditors by imposing the “automatic stay.” The stay prohibits creditors from taking any collection activity against you. Because the wage garnishment is a collection action, wage garnishments must stop once bankruptcy has been filed. There are few exceptions to this prohibition. Most notably, child support collections are not going to be stopped by the automatic stay. A creditor may request that the bankruptcy court terminate or lift the automatic stay in order to continue collection efforts, most likely to proceed with a foreclosure or repossession, where the Debtor has indicated that they do not plan to maintain and pay for that property. (More information on when the Court might lift the automatic stay.)
Once your case is filed, your attorney will proceed in notifying the appropriate parties, including your employer to cease payroll deductions. In most cases, your attorney will be able to have some or all of the money that has been garnished returned to you.
What happens to the Wage Garnishment once your bankruptcy is discharged?
Once your Chapter 7 Bankruptcy has been discharged, you are no longer personally liable to the judgment creditor for the debt that they were garnishing for. Therefore, the garnishment can not be re-filed or reinstated. However, if the debt is a non dischargeable debt, such as student loans or recent IRS, the creditor may resume collection after the bankruptcy is discharged.