Answer: YES, it will. A bankruptcy will stop a lawsuit and a garnishment immediately. Also, it is never too late to minimize the damage that the lawsuit may have already caused. For example, even if the lawsuit is already at the judgment stage, filing a Chapter 7 or a Chapter 13 bankruptcy will stop the lawsuit from proceeding any further. Lawsuits are a process and they get progressively worse. But, even if some damage has already been done, it is important to understand that in the vast majority of cases, much of the damage can be reduced and likely undone.
Don’t assume that it is too late to stop a lawsuit or garnishment. Bankruptcy can stop a lawsuit at ANY stage, even after a judgment is entered.
Over the last 23 years as an Omaha bankruptcy lawyer, I have always been amazed that a great number of people believe that once a lawsuit or garnishment is in effect, that it is too late for bankruptcy to help. They may think it is just too late…..that they have let things go too far…..that there is no hope to stop a lawsuit or garnishment. This just isn’t true. Why? Because lawsuits in Nebraska and in Iowa take time. It takes time to notify or serve the defendant, it takes time to allow the defendant to file a response and, if they don’t, it takes time for the court to enter the judgment. After the judgment is entered, it takes time for the plaintiff to request a garnishment order and then it takes time for the employer or bank to receive the garnishment order. It’s actually a fairly slow process…..and that means good news for people in Omaha and and Council Bluffs being sued.
The amazing power of bankruptcy to “undo” garnishments when more than $600 is taken within 90 days of filing bankruptcy!
Here’s the good part: Bankruptcy can sometimes get your money back even after it has been garnished. There are two ways that this is possible. First, if the bankruptcy gets filed quickly enough, then my team of Omaha bankruptcy attorneys will immediately file a legal notification with the state court to get the garnishment stopped in its tracks. Many times the employer or bank is in the process of sending the garnished funds to the court and those funds are frequently intercepted by the bankruptcy filing….meaning that you get the money back.
The other way that a bankruptcy can work to get garnished wages and bank account funds back is when the creditor receives more than $600 from you within 90 days of filing the bankruptcy petition. Assuming that you have a wildcard exemption available, those garnished funds must be returned to you under federal law. This unique area of federal bankruptcy law is called a “preference.” Once the creditor officially garnishes more than $600 within a 90 day period, the preference laws kick in which then allows a debtor in bankruptcy to retrieve and protect those garnished funds to the extent that they have an exemption available. This special “preference’ law applies to all states.
The bottom line: Bankruptcy can stop a lawsuit and/or garnishment. But, the sooner you file, the more options that you will have.
If you are faced with a lawsuit or garnishment, do not despair. There are many options available to stop legal actions pending against you. The sooner you take action, the better off you will be.