If you have ever experienced a wage garnishment or bank garnishment, you know how scary and panic-inducing it can be. You may already be living on a tight budget, but with funds now coming out of your paycheck or bank account, you may find yourself struggling to meet your and your family’s basic living expenses.
We receive a lot of clients who are in this exact situation. They want to know if bankruptcy can stop a garnishment. It can, and it can discharge other debts in the process.
Upon the filing of a bankruptcy, the automatic stay (a law preventing creditors from collecting on debts) immediately goes into place. This prevents any further garnishment of your wages or bank accounts as of the date the case is filed. If a creditor attempts to continue the garnishment after your case is filed, you are entitled to the return of those funds. As I’ll discuss below, in certain cases, you may even be able to get a return of funds already garnished.
A Chapter 7 and a Chapter 13 bankruptcy will both work for the purposes of stopping a garnishment. However, the chapter of bankruptcy you file may change how the garnishment and underlying debt are affected. Let’s explore each option.
Garnishments in Chapter 7 Bankruptcy
A Chapter 7 bankruptcy will stop a garnishment upon the filing of the case. If any funds were garnished from your wages or bank accounts before your case was filed, the funds already garnished are considered an asset of the bankruptcy estate. You may be able to get these funds back depending on the amount that was garnished within the ninety (90) days prior to the date your case was filed.
If the creditor received more than $600.00 in the last 90 days, and if you have available exemptions left to protect the garnished funds, then you are entitled to the return of the funds. If the funds cannot be protected for purposes of returning them to you (either because the creditor received less than $600 or because you have run out of your available exemptions) then the Chapter 7 Trustee can claim the funds to pay towards your debt. Either way, the bankruptcy will stop the garnishment from continuing into the future.
The type of debt underlying the garnishment may also play a factor in whether you decide to file a Chapter 7 bankruptcy. Debts in bankruptcy can fall into three different categories: secured debt, priority debt, and unsecured debt. If you are being garnished on a credit card, medical debt, or a previously repossessed vehicle, those debts are likely to be dissolved in a Chapter 7 bankruptcy. However, if you are being garnished for taxes owed or perhaps on a store account for furniture or other household items, you may continue to owe this debt after filing a Chapter 7. In that case, you may elect to file a Chapter 13 instead to resolve debts that would not be dischargeable in Chapter 7.
Garnishments in Chapter 13 Bankruptcy
A Chapter 13 bankruptcy will stop a garnishment upon the filing of the case. Similar to Chapter 7 bankruptcy, you may be able to get a return of funds already garnished depending on the amount the creditor received prior to the case being filed and your available exemptions. However, Chapter 7 bankruptcy will only permanently resolve the unsecured or non-priority debt.
If you are being garnished for tax debt or by a secured creditor, such as a secured furniture store or a secured tool loan, then you might consider filing a Chapter 13 bankruptcy, which can help assist you in stopping the garnishment and setting up a regular monthly payment plan to pay off the amount owed. In many cases, the debt owed can even be crammed down to the value of the secured item instead of the loan amount. This will help get rid of any hefty interest, fees, or perhaps just a “bad deal” that caused the loan amount to be greater than the value of the secured item.
Filing a Chapter 13 bankruptcy does not mean that all creditors must be paid back. In many cases, debtors in a Chapter 13 bankruptcy may choose to pay back secured and priority creditors while sometimes paying back only what you can afford to unsecured creditors.
How to Mitigate the Effects of a Garnishment
To help limit the damage a garnishment can have, it is best to talk to an experienced bankruptcy attorney as soon as possible. If a garnishment will cause you difficulties in meeting your mortgage, rent, utilities, and other vital expenses, the longer you wait, the more difficult it will be to recover.
Many people need to get a garnishment stopped as fast as possible. A professional may also be able to help guide you on how to get your garnishment reduced, or how to avoid ongoing bank garnishments to help mitigate damage while you provide your attorney with the items necessary to file your case.
Contact us to speak to one of our experienced bankruptcy lawyers to arrange a free initial consultation.