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Garnishment - Chapter 7 and pending malpractice suit

Laurel, MD |

I have an IRS Tax lien f or 15%, State of MD lien for 15% and just got a notice from my employer that I will be paying 25% for a credit union personal loan. What is the maximum percentages for garnishments that is allowed by law. I was out of work without pay for 16 months due to cancer/heart surgery. When I returned to work and attempted a good faith effort to pay creditors, i was informed about the garnishment. I met with a bankruptcy attorney and qualify for chapter 7 due to no income for the previous 6 months. Trying to ride it out because I have a malpractice suit that will be filed next week. What impact will the suit have on the chapter 7? Do I have to inform the bankruptcy trustee once filed? if bankruptcy is discharged before suit settled what happens?

Attorney Answers 4


The suit will likely not affect your ability to file bankruptcy unless you receive funds after documents are prepared but before the case is filed. Once filed you have to inform the trustee of the lawsuit and that either happens in the filing schedules, or at the meeting of creditors. Normally trustees do not bother with a law suit that is very speculative but a trustee can certainly assert an interest in the litigation so that any settlement can be used to pay bills you owe. Normally if you already have an attorney handling the malpractice case the trustee will allow that attorney to continue the work even though funds may have to be paid into the bankruptcy court from any judgment or settlement. That said a trustee has the right to change the attorney in the case. If the bankruptcy is discharged before the suit is settled then the moneys do not have to go to paying any discharged debts.

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I agree with Attorney Thompson.

Law Offices of J Thomas Smith J.D., Ph.D 11500 Northwest Freeway, Suite 280 Houston, TX 77092 713-LAWYER-2 NOTE: Responses are for the education of the community at large and is not intended to be "legal advice." No attorney-client relationship is established by responses or comments.

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Your question has many parts and there is some information missing. 1. The two tax liens may be avoidable and the underlying tax obligations may be dischargeable in bankruptcy. The attorney you choose will need to know the type of tax due, for what years is it due, have the required returns been filed and when was the tax assessed. A knowdgeable bankruptcy attorney is necessary. 2.The means test for a decision to file Chapter 7 or Chapter 13 is rigid but not blind. If your income over the six months preceeding the bankruptcy qualifies you for a Chapter 7 but your income has now rebounded to a much higher point, there may be trouble with a Chapter 7 filing. 3. The malpractice claim must be listed in the bankruptcy schedules. Most of the claim is likely to be exempt under Maryland Law. The part that is not exempt is the claim for past lost wages. Your bankruptcy attorney and the malpractice attorney should be in contact with each other. 4. The end of a bankruptcy filing comes in two parts: the entry of a Discharge and the closing of the bankruptcy estate. To keep the Trustee away from the malpractice claim you want the estate closed, not just a discharge entered. I'm in Greenbelt. You should give a call and come by.

This answer is very general and based only on the incomplete information in the question. You should not rely on this answer as final or authoritative or legal advice.

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The two tax liens may be avoidable and the underlying tax obligations may be dischargeable in bankruptcy. The means test asses where you previously were financially, since it looks back over past 6 months. while schedule I, J, is forward moving and looks at your current state. In the 7th Circuit that Case would be In Re Lanning. The malpractice claim must be listed in the bankruptcy schedules. And as previously stated, can be exempted in part, it is vital you get an experienced attorney, who know how to adequately assist you.

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