Can Bankruptcy Stop Wage Garnishment?
If you’re unable to repay your debts, wage garnishment is a way for your creditors to get their money back. However, garnished wages can bring about even more financial hardship if you’re already struggling.
There are a variety of ways to stop or prevent wage garnishment, and you may be wondering, “Can bankruptcy stop garnishment?” To answer that, let’s take a closer look at how bankruptcy can impact wage garnishments.
What is wage garnishment?
Wage garnishment typically comes after a legal ruling in which the court instructs your employer to withhold a certain amount of money per paycheck and send it directly to your creditor.
Most of the time, creditors will have to bring a legal case against you in order to garnish your wages. However, in the cases of owed taxes, child support and student loans, creditors don’t need to go to court to initiate wage garnishment.
Creditors can have the following types of debts garnished from your wages:
- Child support
- Student loans
- Credit card debt
- Personal loans
How to stop wage garnishment through bankruptcy
A reported 7% of U.S. employees are having their wages garnished, and the average non-garnished worker earns about 25% more per year than those with a wage garnishment. It’s therefore no surprise that people are searching for a means to reorganize or discharge their debt and, as a result, stop wage garnishments.
When it comes to ending wage garnishment, bankruptcy can be a possible solution — but it’s not a fix-all. Bankruptcy can severely impact your credit score and can remain on your credit report for seven or ten years, depending on the type of bankruptcy you file for.
Here’s what you should know about bankruptcy and how to file for it.
Pros and cons of bankruptcy
Creditors must end their collection efforts once you file for bankruptcy
May provide you an opportunity for a fresh start to begin building your credit up again
In some cases, you may be able to settle with your creditors for less than what you owe
Will remain on your credit report for up to seven years (Chapter 13) or 10 years (Chapter 7)
May impact your chances of acquiring new forms of credit for a while, such as getting a car loan or mortgage
Some types of debts cannot be discharged through bankruptcy
What is an automatic stay?
An automatic stay is a mandate that prevents some creditors from taking legal action against a borrower who has declared bankruptcy.
Generally speaking, filing for bankruptcy (either Chapter 7 or Chapter 13) prompts an automatic stay on all collections and foreclosure actions, including certain wage garnishments.
So, if you have debt collectors calling and the bank is ready to foreclose on your home, filing for bankruptcy can force those actions to stop, at least for a little while.
The automatic stay begins when an individual files for bankruptcy. It usually lasts until a bankruptcy case is closed or the debts are discharged — unless the debtor has declared bankruptcy multiple times within a year, in which case the stay might only last for 30 days or not be issued at all.
How to file for bankruptcy to stop wage garnishment
The steps for declaring bankruptcy will depend on many factors, including your state and the chapter of bankruptcy you need to file. If filing for Chapter 7 or Chapter 13 bankruptcy, the initial steps for petitioning the court and getting the automatic stay are the same:
- Complete credit counseling: Both Chapter 7 and Chapter 13 bankruptcies require filers to complete credit counseling. Be sure that the agency you use is approved by the Department of Justice.
- Look up your district court: You’ll need to get any location-specific filing instructions.
- Gather documents: To file for bankruptcy, you’ll need to present a number of supporting documents, including tax returns, payslips, proof of income, and an accounting of your outstanding debts.
- Complete bankruptcy paperwork: Next, you’ll petition the court and submit your paperwork and documentation. Filing bankruptcy is an incredibly complicated process, but having a bankruptcy attorney who is familiar with the laws in your state can make everything a bit easier. The bankruptcy forms are also available online.
In many cases, filing the bankruptcy petition will initiate the automatic stay on wage garnishment. Once the stay is in place, you may have to contact the creditor that filed a garnishment against you, provide a copy of your bankruptcy filing, and officially request for the garnishment to stop. It is likely that your local sheriff will then have to contact your employer and give authorization to lift the garnishment.
Why bankruptcy won’t stop all wage garnishments
There are some debts that simply aren’t dischargeable through a Chapter 7 bankruptcy, including child support, some taxes and student loan debts. Thus, declaring Chapter 7 doesn’t change or delay your requirement to pay them or stop any related wage garnishment.
This changes when dealing with a Chapter 13 bankruptcy, however — with Chapter 13, the goal is to create a plan to pay off debts over a period of three to five years. Since this is the case, the garnishments will stop as long as you’re in compliance with your Chapter 13 plan. That doesn’t mean you won’t have any wage garnishment, however — the court can still order that the repayment plan is fulfilled through wage garnishment.
Forms of wage garnishment that are not stopped by bankruptcy
While filing for bankruptcy can help alleviate financial pressure, some debts may not be discharged. If you have the following types of debts, you may have your wages garnished in order to repay them:
- Domestic support obligations such as alimony or child support (under Chapter 7)
- Student loans
- Federal/state/local taxes
What are your legal rights during wage garnishment?
Before we talk about additional methods to end garnishment, it’s a good idea to review your rights under the Consumer Credit Protection Act (CCPA).
The CCPA limits the amount that can be garnished from your disposable earnings, the portion of your pay that remains after legally required deductions (such as Social Security) are withheld. Of that remaining disposable income, the weekly maximum amount that can be garnished for a non-support or non-tax purpose, regardless of the number of wage garnishments you have, is the lesser of these two figures:
- 25% of your disposable income; or
- “The amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage”
The federal minimum wage is currently $7.25 an hour. If you’re paid weekly and your disposable earnings are less than $217.50 ($7.25 x 30), there can be no wage garnishment. Any disposable earnings above that amount can be garnished, until you hit the 25% threshold. If your weekly disposable income is $290 or more, wage garnishment will be figured by the percentage. For example, if your weekly check is $500 after legally-required deductions, the maximum wage garnishment would be $125 (25% of $500), since that figure is less than the amount by which your pay exceeds 30 times the minimum wage.
Once you understand what creditors can and can’t do in terms of garnishing your wages, you can monitor what’s taken from your paycheck and make sure it’s compliant with the CCPA.
Other options for stopping wage garnishment
If you want to end the garnishment without declaring bankruptcy, here are some other options:
Pay off the debt or settle
Creditors garnish wages in an effort to recoup the money they are owed. In many cases, a creditor might agree to take a reduced, single lump-sum payment rather than taking months or years of garnished wages. Using emergency savings or home equity can give you the funds you need to potentially reach a settlement that not only ends the wage garnishment, but also results in a smaller total repayment amount.
Get the judgment overturned
You may be able to get the wage garnishment order overturned or vacated if one of the following scenarios applies to you:
- You missed a court date
- You didn’t receive any papers about the complaint that ended up with garnishment
- You have a legally sound reason for why the creditor should not have won the case that resulted in wage garnishment
After completing your state’s Motion to Vacate form within the allotted time frame, you can expect to attend a hearing to present your case.
File an exemption for hardship
No matter what limits the CCPA imposes on wage garnishments, the amount taken from your check can stretch the limits of your budget and make it difficult for you to stay current on other bills. When this is the case for student loans and tax debts, you may be able to object to the garnishment by completing required Education Department forms or calling the IRS. For other creditors, filing your state court’s Motion to Quash form might be necessary.
File a head-of-household exemption
As the main source of financial support for your family, you may be able to claim an exemption that reduces your wage garnishments. This is called a head-of-household exemption, and to qualify, you’ll need to provide at least 51% of the support for a dependent (including your spouse). Check your state court’s website to find the appropriate form. Once that’s completed, you’ll be expected to attend a hearing where you can present evidence of your financial obligations and income.
The best defense to wage garnishment is a good offense, which means taking the steps to settle debts or establish repayment plans before wage garnishment starts. This means talking with your creditors as billing notices, late notices and collection notices come in to determine whether you can make a payment arrangement or settle for a one-time, lump-sum payment before collection attempts escalate.
How you can avoid wage garnishment
If you find yourself falling behind on bills or you experience financial hardship, such as job loss or unexpected medical bills, contact your creditors. Many creditors may be willing to work with you to help you avoid wage garnishment or bankruptcy. Some creditors may lower your payments or even offer deferment or forbearance.