Wage Garnishment & Bankruptcy

In the current state of the law, bankruptcy generally acts as a protection for debtors while wage garnishment is a collection method for creditors. Wage garnishment might cause a debtor to file bankruptcy, but once the case is filed, wage garnishment will stop. In most cases, a debtor can stop wage garnishment immediately upon filing through the automatic stay and into the future through discharge of indebtedness.

Wage Garnishment

Wage garnishment is a collection method used by a creditor. It allows the creditor to take money directly from a debtor's paycheck. The debtor's employer is required by law to withhold a portion of the employee's check. The amount a creditor can take out is limited by statute to 25 percent for ordinary judgments and 50 percent for alimony and child support. Certain types of income cannot be garnished, such as public benefits and social security income.

The Automatic Stay

The automatic stay is a type of protection for debtors that comes into play as soon as a bankruptcy case is filed. The automatic stay prevents creditors for most types of debt from taking any action to collect the amount they claim is owed. Wage garnishment is one such collection method and, for most types of debt, can no longer occur once the automatic the stay is in affect.

The Discharge

The discharge is the point in a bankruptcy case when certain debts are eliminated. This usually occurs after the completion of a plan in a Chapter 13 bankruptcy case. In a Chapter 7 this usually occurs after the time period has expired for filing an objection to the discharge or a motion to dismiss the case for substantial abuse. Debts that are discharged can no longer be collected on at any point in the future.

Limitations

There are certain limitations on the power of the automatic stay and discharge to protect a debtor from wage garnishment. Certain priority debts such as back taxes, child support, and alimony cannot be discharged and do not fall under the rubric of the automatic stay. There are also circumstances in which the automatic stay can be lifted, but this occurs in specific circumstances usually dealing with secured creditors who are worried about what will happen to their collateral. The discharge can also be revoked. Generally, however, this requires allegations of fraud on the part of the debtor.

Considerations

Wage garnishment can be detrimental to a debtor's financial situation, but might not be reason enough on its own for a creditor to immediately file for bankruptcy. Outside of bankruptcy, there are protections for debtors who are facing garnishment. Title III of the Consumer Credit Protections Act limits garnishment to the lesser of 25 percent of disposable income or the amount greater than 30 times the federal minimum wage. Bankruptcy has lasting affects on credit and should be entered into with a view to a debtor's entire financial situation.

References

• United States Department of Labor: Wages and Hours Worked: Wage Garnishment
• Lawyers.com: Garnishment