While in itself it is not (and should not) be the primary reason why you should file for bankruptcy — since this determination must ultimately be based on a comprehensive analysis of what is in your best long-term financial interest — the fact remains that one of the biggest advantages of filing is that all collection action against you must stop immediately. This includes all calls, letters and emails from creditors (or collection agencies on their behalf), and very importantly, it also means that wage garnishments musts cease and you may be entitled to recover all or some of these funds. We discuss this further. First, let us look at how wage garnishment works, and what happens if and when you file for bankruptcy.
How Wage Garnishment Works
Unless your debt in question is a student loan, taxes or child support, generally creditors cannot garnish your wages without first filing a lawsuit in court and securing a money judgement. If such a judgement is obtained, it is forwarded to your employer, who is then legally obligated to claw back a portion of wages for each pay period and remit it to the creditor.
Note that employers have no discretion in this regard and cannot deviate from the instructions laid out in the judgement, regardless of how much they may sympathize with your financial situation (i.e. you may be indebted because of massive medical bills, an acrimonious divorce, emergency repair bills to your home, etc.).
What Happens When You File for Chapter 7 Bankruptcy
If and when you file for chapter 7 bankruptcy, you will automatically and instantly be protected by what the court refers to as an automatic stay. This essentially bars creditors from taking any collection action during your bankruptcy case proceedings.
The court will inform your employer (along with all other listed creditors) about the bankruptcy filing and automatic stay and will instruct that all collection action — including wage garnishment — cease. Since this process is can take a few weeks, you can if you wish send a copy of the bankruptcy filing to your employer to expedite things. Any wages that were clawed back after the date the automatic stay came into effect will be released to you.
Recovering Garnished Wages
It may also be possible to recover garnished wages that were clawed back within 90 days prior to the bankruptcy filing/automatic stay. The amount in question must be more than $600, you must have enough exemptions to cover the funds, and the court-appointed Bankruptcy Trustee must not attempt to avoid the transfer.
If all of these apply, then you may be entitled to file a lawsuit against the garnishing creditor (i.e. your employer) as part of an adversary proceeding. Being represented by an experienced bankruptcy attorney is essential here. Many people attempt to represent themselves (“Pro Se”) and realize very quickly that it is a much more complex process than they realized. The courts also have very little tolerance (read: none) for litigants who do not file the correct paperwork or are ignorant of laws, proceedings and protocols.
If your wages are currently being garnished, and you want to learn more about the process of filing for bankruptcy — potentially recovering some or all of these clawed back funds — contact the Law Office of Charles H. Huber today.