If your employer has to garnish your wages to pay your creditors, bankruptcy can help. Filing bankruptcy stops garnishment, at least until the court wraps up your case. If you succeed in wiping out most of your debts, you won't have to deal with garnishment when bankruptcy ends, either.
The Automatic Stay
The moment you file for bankruptcy -- whether Chapter 7, 11 or 13 -- it triggers an automatic stay that blocks creditors from collecting. Bankruptcy also stops creditors garnishing wages or self-employment income.
Your creditors may not learn about your bankruptcy filing automatically. As a result, you or your attorney should notify a creditor garnishing your wages immediately that you have done so. You also should contact the county sheriff, who then notifies your boss to stop taking the money out.
If your wages are garnished for child support or alimony, that's an exception. Those payments keep coming out of your paycheck even in bankruptcy.
If a creditor garnished more than $600 in wages in the 90 days before you filed, the court may require he pay it back. Whether you get to keep it depends on your overall finances and how much of your assets state law protects from creditors during bankruptcy It's possible your creditors will still get the money, but it will be divided up among different creditors rather than just one.
Debts in Bankruptcy
If you file Chapter 7 bankruptcy, the court will sell all your non-exempt assets, then divide the proceeds among your creditors. In Chapter 13 or Chapter 11 -- the latter is only available to business owners -- you work out a plan that pays off as much of your debt as possible before you emerge from bankruptcy. Even though you've stopped the garnishment, you may not be much better off by the time you finish the payment plan.
When you emerge from your bankruptcy, debts you haven't paid are wiped out. For example, if a hospital garnished your paycheck for an unpaid medical bill, bankruptcy erases the debt. The hospital no longer has a right to garnish anything, even if it only received a fraction of the bill. The exceptions are those debts, such as alimony or child support, that don't disappear when you go through bankruptcy.