The purpose of this article on bankruptcy and wage garnishment is to address how filing for bankruptcy can impact wage garnishment. If you ever experienced wage garnishment, you know how financially disturbing this can be for your finances.
1 – Bankruptcy and Wage Garnishment: What is Wage Garnishment?
Payday is approaching and you have plans for that money. However, when you get your check or deposit, you find that your actual pay is much less than expected. This is one of the most upsetting experiences that a family can face.
You need to pay your bills. That money is intended to pay your mortgage, rent, or food, or your car payment, or your children’s clothing; maybe even tuition. And suddenly you find it is a fraction of what it should be.
You can’t afford to pay your bills. Your family budget is based on your income. Yet, your income is only a portion of what you earned.
How does this happen? It happens through wage garnishment.
A wage garnishment, or wage attachment, occurs when a creditor, usually one who has already sued you and obtained judgment, sends a Court Order to your employer, often without your knowledge, ordering your employer to take a portion of your pay and send it to the Creditor. In Maryland this can be a significant portion of your paycheck.
2 – Bankruptcy and Wage Garnishment: Is Filing a Chapter 7 Bankruptcy a Solution?
It can be. In most cases, filing a Chapter 7 Bankruptcy immediately stops (or STAYS) the wage garnishment. This STAY prohibits creditors from taking further action to collect on your debt.
There are a few instances where the automatic STAY will not stop wage liens, such as for child support or alimony. While a Creditor may ask the Court to Lift the STAY, generally only secured debts such as may be secured with a car or home are asked to be lifted.
Lifting the STAY rarely occurs for unsecured debt such as credit cards, personal loans, and medical bills. Then, when the case is closed (or Chapter 7 Bankruptcy is adjudicated), the automatic STAY ends and these unsecured debts are generally discharged, and you no longer owe them. In other words, your financial slate is wiped clean of these debts.
To ensure the wage garnishment is stopped immediately upon filing Bankruptcy, you or your attorney should inform the employer and the creditor immediately upon filing the Bankruptcy. A possible exception affecting the automatic STAY occurs if a Debtor files multiple (called “serial”) Bankruptcies within one year.
In these cases, the STAY can be limited to thirty days, or not at all. However, a Motion can be filed to ask the Judge to keep the STAY in place, even under those circumstances.
3 – Bankruptcy and Wage Garnishment: Can Wages already Garnished be Recovered?
It is possible to try to get back wages which were garnished before the Bankruptcy was filed, if the garnishment was recent. However, often it is not cost effective to file a Motion to do so, depending on the circumstances.
It is generally far better to file the Bankruptcy as soon as you know you are being sued, and certainly before the Court enters a Wage Garnishment Order, if at all possible.
In most cases, filing a Chapter 7 Bankruptcy immediately stops (or STAYS) the wage garnishment.
In summary, wage garnishment is a horrible financial experience. Everyone has bills to pay. Money intended to pay your necessities, including housing, food, utilities, etc., is lost to wage garnishment.
Filing a Petition in Bankruptcy under Chapter 7 is often the solution to stop wage garnishment.
Every financial situation is different, and this process is complicated. If appropriate, Motions need to be filed with the court on a timely basis and monitored. This should best be handled with the assistance of an experienced bankruptcy attorney.
