Bankruptcy and Wage Garnishment: Stop Garnishments, Legal Relief

Introduction

Wage garnishment can be a significant financial burden for individuals already struggling with debt. Bankruptcy offers a potential solution to stop garnishments and provide legal relief. This guide will explore the intersection of bankruptcy and wage garnishment, detailing how bankruptcy can halt garnishments, the legal framework governing these processes, and the steps involved in seeking relief.

Understanding Wage Garnishment

What is Wage Garnishment?

Wage garnishment is a legal procedure in which a portion of an individual's earnings is withheld by an employer to pay off a debt. This process is typically initiated by a court order or government agency.

Types of Wage Garnishment

1. Court-Ordered Garnishment: This occurs when a creditor sues a debtor and obtains a judgment. The court then orders the employer to withhold a portion of the debtor's wages.
2. Administrative Wage Garnishment: This type is initiated by federal or state agencies without a court order, often for debts like student loans or taxes.

Legal Limits on Wage Garnishment

The Federal Wage Garnishment Law, as outlined in the Consumer Credit Protection Act (CCPA), limits the amount that can be garnished from an individual's disposable earnings. According to the U.S. Department of Labor, the maximum amount that can be garnished is the lesser of:

• 25% of disposable earnings, or
• The amount by which disposable earnings exceed 30 times the federal minimum wage.

For more details, refer to the Fact Sheet #30: The Federal Wage Garnishment Law.

Bankruptcy as a Solution to Wage Garnishment

The Automatic Stay

One of the most powerful tools in bankruptcy is the automatic stay. When an individual files for bankruptcy, an automatic stay immediately goes into effect, halting most collection activities, including wage garnishments. This stay provides temporary relief and allows the debtor to reorganize their finances.

For more information, visit the Northern District of Georgia's page on Motion for Relief from the Automatic Stay.

Types of Bankruptcy

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of a debtor's non-exempt assets to pay off creditors. Most unsecured debts, including credit card debt and medical bills, are discharged. Wage garnishments are typically stopped once the bankruptcy petition is filed.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, or reorganization bankruptcy, allows debtors to keep their property and repay debts over a three to five-year period. This type of bankruptcy is particularly useful for individuals with a regular income who can afford to make monthly payments. Wage garnishments are halted, and the debtor's repayment plan may include provisions to address the garnished amounts.

For more details, refer to the United States Courts' Chapter 13 Bankruptcy Basics.

Steps to Stop Wage Garnishment Through Bankruptcy

Step 1: Consult with a Bankruptcy Attorney

Before filing for bankruptcy, it is crucial to consult with a qualified bankruptcy attorney. They can provide guidance on the best type of bankruptcy for your situation and help you understand the implications.

Step 2: File the Bankruptcy Petition

Once you decide to proceed with bankruptcy, the next step is to file a bankruptcy petition with the court. This filing triggers the automatic stay, which stops most collection activities, including wage garnishments.

Step 3: Notify Your Employer and Creditors

After filing the petition, notify your employer and the creditors involved in the garnishment. Provide them with a copy of the bankruptcy filing and the automatic stay order.

Step 4: Attend the Meeting of Creditors

Approximately 20 to 40 days after filing, you will attend a meeting of creditors, also known as a 341 meeting. During this meeting, the bankruptcy trustee and creditors may ask questions about your financial situation and the bankruptcy petition.

Step 5: Complete Required Courses

Debtors are required to complete a credit counseling course before filing and a debtor education course after filing. These courses are designed to help you understand financial management and avoid future financial issues.

Step 6: Obtain a Discharge

In Chapter 7 bankruptcy, the discharge typically occurs within a few months of filing. In Chapter 13 bankruptcy, the discharge occurs after the completion of the repayment plan. The discharge releases you from personal liability for most debts, including those subject to wage garnishment.

Legal Framework Governing Wage Garnishment and Bankruptcy

Federal Laws

1. Consumer Credit Protection Act (CCPA): This act limits the amount of an individual's earnings that can be garnished and provides protections against termination due to garnishment.
2. Fact Sheet #30: The Federal Wage Garnishment Law
3. Bankruptcy Code: The Bankruptcy Code, found in Title 11 of the United States Code, governs the bankruptcy process and provides for the automatic stay.
4. Chapter 13 Bankruptcy Basics

State Laws

State laws also play a significant role in wage garnishment and bankruptcy. Each state has its own set of exemptions and rules regarding garnishment limits and bankruptcy procedures. It is essential to consult state-specific resources or a local attorney for detailed information.

Key Court Cases

1. Local Loan Co. v. Hunt, 292 U.S. 234 (1934): This landmark case established that bankruptcy courts have the authority to issue injunctions to stop wage garnishments.
2. Harris v. Viegelahn, 575 U.S. 510 (2015): This case clarified the treatment of post-petition wages in Chapter 13 bankruptcy.

Special Considerations

Federal Benefits and Wage Garnishment

Certain federal benefits, such as Social Security and Veterans Affairs (VA) benefits, are generally exempt from garnishment. However, there are exceptions for debts like child support, alimony, and federal taxes.

For more information, visit the Consumer Financial Protection Bureau's page on federal benefits.

Administrative Wage Garnishment

Administrative wage garnishment (AWG) allows federal agencies to garnish wages without a court order. This process is governed by the Debt Collection Improvement Act of 1996 and the regulations issued by the U.S. Department of the Treasury.

For more details, refer to the Administrative Wage Garnishment Background.

Impact on Credit Score

Filing for bankruptcy can have a significant impact on your credit score. While it may provide relief from wage garnishment and other debts, it will remain on your credit report for up to 10 years for Chapter 7 and up to 7 years for Chapter 13. It is essential to weigh the pros and cons and consider the long-term implications.

Conclusion

Bankruptcy can be a powerful tool to stop wage garnishments and provide legal relief for individuals struggling with debt. Understanding the legal framework, the types of bankruptcy available, and the steps involved in the process is crucial for making informed decisions. Always consult with a qualified bankruptcy attorney to navigate the complexities of the bankruptcy process and achieve the best possible outcome.

For further reading and official resources, refer to the following links:

1. Motion for Relief from the Automatic Stay | Northern District of Georgia
2. Fact Sheet #30: The Federal Wage Garnishment Law
3. Chapter 13 Bankruptcy Basics | United States Courts
4. Can a debt collector take or garnish my wages or benefits?
5. Administrative Wage Garnishment Background
6. Can a debt collector take my federal benefits, like Social Security or VA benefits?

By understanding your rights and the legal options available, you can take steps to protect your financial future and achieve relief from wage garnishment.