How to Stop Wage Garnishment with Chapter 7 Bankruptcy
If a creditor engages in aggressive collection actions, wage garnishment is one method they may use. This can make it hard to cover your bills and other living expenses. When you declare Chapter 7 bankruptcy, an automatic stay prohibits creditors from continuing to enforce collection actions.
What Is Wage Garnishment?Creditors can go after your wages if you owe taxes, student loans, or child support. Most of the time, your wages can*t be garnished without a lawsuit in court first. A creditor can then seek a money judgment, which permits them to move forward with wage garnishment. The order is then forwarded to your employer; part of each pay period*s wages will be held and sent to the creditor.
By law, there are limits as to how much can be taken from your weekly, bi-weekly or monthly paycheck. Some creditors can take your wages without court approval. The IRS and collectors of federally-guaranteed student loans are examples. For any garnishment you have, it will continue until the entire judgment is paid, or you, and your creditor, reach a separate settlement.
How Does Chapter 7 Bankruptcy Help?Once you file for bankruptcy, a court order, also known as an injunction, is put into place. The injunction imposes an automatic stay that stops creditors from trying to collect your debt. It prohibits most creditors from continuing or initiating collection actions. Wage garnishment is a collection action so the creditor will be forbidden by the court to continue taking funds out of your paycheck once you file.
The court will notify your creditors soon after you file for bankruptcy. However, it can take a week or more for them to receive official notification, but your attorney can help by directly providing your bankruptcy case number, filing date, and court location to creditors and employers. The creditor must stop the garnishment as soon as they learn of your bankruptcy. A letter of notification from the court isn*t required before they discontinue such action. In fact, continued wage garnishment would violate the automatic stay.
As stated earlier, Chapter 7 bankruptcy will not stop all garnishments; however, Chapter 13 bankruptcy will, as your debts are reorganized into a plan you pay off over three to five years.
Procedures for Stopping Wage GarnishmentThe bankruptcy court will ask for a list of your creditors, along with their contact information. It will then notify them of your bankruptcy filing, and demand the creditor suspend all garnishments. Sending a copy of your filing to the creditor on your own is possible. Doing so can speed up the process.
If an automatic stay has been imposed, it will be enforced until the end of your bankruptcy case. Most of the time, Chapter 7 bankruptcy discharges any debt associated with the garnishment, so the creditor cannot resume any further collection actions. However, wage garnishment can resume if the debt subject to garnishment wasn*t discharged, or the bankruptcy case is dismissed before any discharge of debt occurs.
An automatic stay may end if you have a recent bankruptcy. Wage garnishment can then proceed. For example, you will get just a 30-day automatic stay if you previously filed for bankruptcy and the court dismissed it within the past year. The court may extend this time limit if you ask it to, which requires a formal motion and for you to prove your second filing is being made in good faith.
You will not receive an automatic stay with a third bankruptcy filing if you filed twice in the past year. However, it*s still possible to ask the court for an alternative decision.
Various court actions can be sought depending on your situation. For example, you can recover wages garnished prior to your bankruptcy filing, although it*s typically costly to do so. There are a few requirements to recover garnished wages:
The wage garnishment must have occurred within 90 days prior to filing for bankruptcy.
The garnishment must exceed a certain amount, which is subject to change.
The amount must be protected by an exemption.
Recovering garnished wages requires your state having an exemption that protects that cash, and that you file a lawsuit against your creditor in bankruptcy court. The process may or may not be worthwhile depending on what your attorney charges and how much you could get back.
Ensuring Your Bankruptcy Filing Is SuccessfulMake sure your bankruptcy is filed correctly and achieves the desired outcome by working with an experienced, reputable bankruptcy attorney in Los Angeles. At OakTree Law, we can negotiate the terms of your bankruptcy to stop wage garnishments and other collection actions. If creditors are aggressively seeking to collect, a Chapter 7 bankruptcy can discharge most or all of your debt of it, so you can start over. Contact us today for a free case evaluation.