Employer Responsibility to End Employee Garnishment upon Filing of Bankruptcy Case
An Analysis of Employer responsibility, and potential liability, for willful refusal to end a garnishment upon being informed that their employee has filed Bankruptcy. This applies to in-house HR departments as well as external payroll processing companies.
Employer Responsibility to End GarnishmentGarnishment Continuation After filing of the Bankruptcy Case
The question often arises of who is responsible to stop an employee's garnishment after the employee files for Bankruptcy relief: the Creditor, the Creditor's attorney, or the employee's Employer.
When a Bankruptcy case is filed by an employee, the Creditor's attorney usually acts with haste to end the garnishment. Occasionally, however, an Employer's payroll administrator may refuse to end the garnishment process. Whether an in-house HR person or an external payroll management company, they may be confused or believe they are forbidden to stop the garnishment without a follow up order from the court that issued the original garnishment order.
When the payroll administrator refuses, post-Bankruptcy filing, to stop the garnishment, consequential injury to the employee cannot be understated. If it becomes a prolonged refusal, mere return of the garnished funds at some later date will not be sufficient to redress harm to the employee.
Several questions arise: Who has the responsibility of stopping the garnishment? Precisely who is in violation of the Bankruptcy Code's Automatic Stay?; and, relatedly, who is liable for harms to the employee?
Federal Bankruptcy Law on this issue is very clear:
11 U.S.C. ? 362(a) provides as follows:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title operates as a stay, applicable to all entities, of --
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of this case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
This Federal Statute, better know as the Automatic Stay, is automatically effective upon the date of the filing of the petition, whether voluntary, joint, or involuntary, and formal service of process is not required.
The purpose of the Automatic Stay, which is one of the fundamental debtor protections provided by the bankruptcy laws, is to give the debtor a breathing spell from her creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the Debtor to be relieved of the financial pressures that drove her into bankruptcy.
More to the point, the Automatic Stay is self-operating. All who have a part in the garnishment process must take such positive action as necessary to give effect to the Automatic Stay. Taking no action, under whatever pretext, is unacceptable; no action is action to thwart the effectiveness of the Automatic Stay. This includes Employers.
ConclusionWhile Creditor's counsel, upon being informed of the Bankruptcy filing, act with haste to do all acts necessary to end the garnishment, Employers sometimes hesitate. Employers often are not aware of their responsibility under the Bankruptcy Code. This is all the more remarkable given that the employee serves, trusts, and depends upon the employer. Thus, upon being informed of the Bankruptcy filing, the refusal to stop the garnishment by an Employer would also constitute a willful violation of the Automatic Stay. All parties involved in the process of garnishing an employee's wages may be held liable for willfully refusing to end the garnishment process upon a Bankruptcy Debtor's wages.