Can You Fight a Wage Garnishment During Bankruptcy?
During the debt collection process, you may be faced with the threat or actualization of having your wages garnished. A wage garnishment most often occurs by court order and requires that your employer withhold a specified amount of money from your paycheck to be forwarded to an entity or person to whom you owe money until your debt is resolved.
If you are faced with this circumstance, there is recourse through bankruptcy. Chapter 7 bankruptcy filing is the proper way to fight a wage garnishment in the present or one that you fear will happen in the future. This course of action and its consequences should be carefully considered, as with any bankruptcy filing.
Here are some of the particulars of the process and how you can use Chapter 7 to fight having your wages garnished.
Does Chapter 7 Always Stop a Wage Garnishment?
Although there is no final solution until debts are resolved, in most cases, a Chapter 7 bankruptcy filing will stop an immediate garnishment of your wages. Chapter 7 creates an automatic stay that keeps most private investors and even the government from garnishing your wages even if there is a pending lawsuit against you.
Some of the situations in which a Chapter 7 filing will not stop a
wage garnishment include child support, taxes and student loans.
What is an Automatic Stay?
An automatic stay that is provided for by the law to keep creditors from any action of collection during a bankruptcy case. Wage garnishments are a collection action, so they stop as well. Once imposed, an automatic stay will usually protect the debtor for some time, even at the request of the creditor to remove the stay.
A debtor may speed along the process of an automatic stay by sending the court order of the stay directly to creditors.
The Stay and the Repeat Offender
The automatic stay is not as powerful for an individual who has a recent bankruptcy. If a previous bankruptcy filing was dismissed less than a year from a current filing, then an automatic stay will last for one month (30 days). The debtor can file a formal motion to ask the court to extend this 30-day period. The point of this deteriorating benefit is to keep people from constantly filing bankruptcy to push a debt into the future indefinitely.
An automatic stay will not provide any benefits if a debtor has filed for bankruptcy more than once within a year of the current filing. The debtor must proactively ask the court to impose the stay in this situation, and the court can choose to impose it or reject the query.
When Does an Automatic Stay Normally Stop?
The automatic stay only provides a benefit to a debtor as long as the bankruptcy case of that debtor is active in court. If a bankruptcy completely discharges a debt, then the stay will end with garnishing of wages ending as well. However, if the debt has not been discharged, then a creditor may continue to garnish wages.
Does the Creditor Have the Power to Lift a Stay and Garnish Wages During a Bankruptcy Case?
In some cases, the creditor has the ability to lift a stay by petitioning the court. The creditor must have what is known as "good cause" to receive this benefit, a concept that is more fluid and open to the discretion of the court. However, there are some situations that are more likely to cause the court to side with the creditor:
A debtor that is behind on the payments of a large asset such as a house or a car may cause an automatic stay to fail. Insurance payments that are mandated by law to hold on large assets are also cause for a court to lift a stay. Also, if a debtor is looking to surrender a large asset on a voluntary basis, then wage garnishment may be lifted by the court.
If a debtor is filing Chapter 7 at the same time as a Chapter 13 filing is in place, the court may drop an automatic stay so that creditors can be paid in a timely manner.
If a creditor holds any of the non-dischargeable debts mentioned above (taxes, child support or educational debts, etc.), then the court may lift the automatic stay of the Chapter 7 filing to allow the creditor to collect.
Although the automatic stay may seem like a great option for an individual, make sure that you have the counsel of an experienced bankruptcy lawyer before attempting to file anything with a court for best results.
Emory Clark founded Clark & Washington, P.C. in 1983, with an intent focus on providing sound financial and legal advice in bankruptcy cases. The firm's Chattanooga bankruptcy lawyers exclusively work on Chapter 7 and 13 bankruptcy cases — and advise and counsel clients through each step of the process. To learn more, visit http://www.chattanooga-bankruptcy-attorney.com/.