If you are struggling with financial problems, it can be a very stressful situation. One thing that may come up is wage garnishment, and unfortunately, this can be a devastating turn of events. 

Creditors who obtain a judgment against you have the right to seize up to 25% of your paycheck and an unlimited amount from your bank account (up to the total amount of the judgment). Bankruptcy can stop wage garnishment, bank account levies, and other debt collection actions.

But to get to that point, you probably need some help. That’s what the lawyers at the Law Office of W. Thomas Bible, Jr. are here for.  We can stop garnishment by helping you file for bankruptcy. The more you know about this before you are dealing with it, the better, so let’s take a closer look at how bankruptcy can stop wage garnishment.

Stop wage garnishment with bankruptcy

So what exactly is wage garnishment? It is a legal tool often used by debt collection companies to collect credit card debt, medical debt, and other types of unsecured debt. If you have defaulted on a loan, your creditor may file a lawsuit against you after a certain amount of time. If the creditor wins the lawsuit, they can begin taking money out of your paycheck and/or bank account.

Note that most creditors cannot garnish your wages without first suing you in court and getting a money judgment. 

When you file for Chapter 7 bankruptcy, the law immediately begins protecting you from creditors by imposing an automatic stay. The stay prohibits creditors from taking any collection activity against you during your bankruptcy case.

Because wage garnishment is a collection action, wage garnishments must stop once you file for bankruptcy. There are a few exceptions to this prohibition—most notably, child support collections will not be stopped by the automatic stay.

A creditor can ask the bankruptcy court to lift the automatic stay, but the court is unlikely to do so unless the creditor has a debt secured by collateral, such as a house or car, and the creditor will lose money if forced to wait until the case ends.

The automatic stay 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 last only 30 days or not be issued at all.

Short or no automatic stay for repeat bankruptcy filings

If you have a recent bankruptcy in your past, the automatic stay will end after a short period. If that happens, the wage garnishment can continue, according to these rules:

  • If you filed for bankruptcy previously and it was dismissed within one year of your current filing, the stay will last for 30 days. You can ask the court (by formal motion) to extend this time. You’ll have to prove that you made your second filing in good faith.
  • If you previously filed for bankruptcy twice in the past year, the automatic stay won’t kick in at all when you file the third case. But again, you can ask the court to impose the stay.

Essentially, you cannot use serial bankruptcy filings to avoid wage garnishment indefinitely.

Here are a few of the most common questions we hear from clients about wage garnishment and bankruptcy:

Will filing for bankruptcy stop ALL wage garnishments?

No. There are some debts that aren’t dischargeable through a Chapter 7 bankruptcy, including child support, some taxes, and student loan debts. This means that declaring Chapter 7 doesn’t change or delay your requirement to pay them or stop related wage garnishment.

With Chapter 13 bankruptcy, the goal is to create a repayment plan to pay off debts over a period of 3 to 5 years. Because of this, wage garnishments will stop as long as you’re in compliance with the Chapter 13 plan. However, the court can still order that the repayment plan is fulfilled through wage garnishment.

How will my employer know to stop garnishing my wages?

Once the court receives a compliant bankruptcy filing, they will issue the automatic stay motion immediately. This notifies your employer to stop garnishing wages and lets the creditor know they will no longer receive these payments. But remember that the automatic stay only works for creditors you’ve listed in your bankruptcy filing and, when filing Chapter 7, for those debts that are dischargeable.

How soon after I file will the garnishment stop?

Because the court immediately issues the automatic stay after receiving a compliant declaration of bankruptcy, all eligible garnishments should be removed from the next paycheck you receive. It can take some time for the notice to be received, so you might want to let your employer and the garnishing creditor know about the filing ahead of time.

What happens after my bankruptcy is discharged?

If it’s a Chapter 7 and your garnished debts are dischargeable, they will likely be wiped out and you can continue getting your whole paycheck. If the debts were not dischargeable, then you will continue paying them through garnishment until they are paid off or you settle with the creditor. 

If these were dischargeable debts and you filed Chapter 13, then the debts would be repaid or discharged through your reorganization payment. If the reorganization payment was payable through its own wage garnishment, then that will end once the bankruptcy does.

We hope this helps clear up any confusion about filing for bankruptcy to stop wage garnishment. It is a complicated topic, but one we have worked with clients on many times. We will be happy to help you figure out the best solution for your situation.

Discover Tom Bible Law in Chattanooga, TN

If you are struggling with excessive debt and looking for a sound solution, the attorneys at Tom Bible Law, can help you explore your legal options. We have helped numerous clients from Chattanooga and throughout Tennessee and North Georgia achieve their debt relief goals by guiding them through the bankruptcy process. We work with every client personally, giving each and every bankruptcy case the time and attention it needs. We understand the financial pressures our clients are facing and work to resolve their debt problems in a favorable, cost-effective manner. Our bankruptcy lawyers have more than 80 years combined experience and are here to help. Call us today at 423.424.3116 or drop us a note here.