Your paycheck may be the only real asset that a creditor with a judgment against you can reach.
Few of us can survive for long with a sharp drop in our take home pay.
So it’s good to know that a bankruptcy filing will stop a garnishment.
Once your bankruptcy case is filed, creditors are no longer entitled to garnish your wages for debts that existed at the beginning of the case.
The only exception may be for on-going child or family support ordered by a court.
The automatic stay is an injunction that applies to all creditors. The stay requires every creditor to cease collection, even the IRS. Creditors who violate the stay expose themselves to court ordered sanctions.
More on the automatic stay
Recovering your money
The bankruptcy code has a provision enabling a debtor to recover any money garnished within 90 days of the bankruptcy filing.
The debtor must have exemptions available to shelter the money to be recovered.
Some creditors will voluntarily return wages garnished in the preference period. Others will hold out until the court orders it. Getting that court order for the return of the money can be expensive relative the amount of money at stake.
At the successful conclusion of a bankruptcy case, the court enters the discharge order.
The discharge of a debt will forever eliminate a creditor’s right to garnish your wages on account of that debt.
The discharge replaces the automatic stay as a restraint on collection.
Like the automatic stay, creditors who ignore the discharge are subject to court sanctions.
Timing is important. Most courts hold that if you file bankruptcy between paychecks, the creditor has rights to the permitted share of each day’s wages up until the filing.
Put another way, just filing before paychecks are issued may not protect all of the wages in the pay period.
The sooner you act to find out if bankruptcy is the right solution, the more of your wages will be protected.
Don’t overlook any rights you have under state law to claim protection for your wages. Those state law protections may buy you time to consider bankruptcy.
How to determine if bankruptcy is the right choice
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