Can You File Bankruptcy to Stop Wage Garnishments? Understanding Wage Garnishment Laws To Protect Your Earnings
Often when I talk to people about bankruptcy, people look at filing for bankruptcy as an option of last resort. People often call about filing for bankruptcy when there are things like foreclosure or a repossession. Can you file bankruptcy to stop wage garnishments?
What is a Wage Garnishment?
A wage garnishment is a deduction from your periodic payments of wages to satisfy a money judgment. There are laws around the wage garnishment process that include procedures for garnishment, as well as limits on garnishment.
How Much May Be Garnished From Wages?
Although there are conditions to the rule, the law here in NY provides that up to ten percent of your gross wages or up to 25% of disposable earnings, provided that the person makes at least 30 times the federal minimum wage, or the state hourly minimum wage, whichever is higher.
Disposable earnings means your income after mandatory standard deductions, like mandatory tax deductions and other withholdings for employees.
Further, while there are exemption laws that include garnishment limitations, it’s up to you, the debtor, to prove any wage exemptions or conditions that should reduce the amount garnished. Even further, you may be able to go to court and request broader restrictions for creditors, depending on your financial situation.
Some people ask whether the type of debt affects whether their disposable income may be subject to garnishment. It is a common misconception that wage garnishment laws only apply to delinquent credit card debt. While the bulk of wage garnishment laws do deal with credit card debt, other forms of debt can be garnished as well. In fact, there is a long list of things that can be garnished from your paycheck (this list is inclusive but not exhaustive):
- federal income tax
- child support payments
- car payments
- court-ordered fines
- restitution for victims of violent crimes
- private and federal student loans
- Medical bills
- unemployment insurance taxes
How Does It Affect My Paycheck?
Before getting to whether you can file bankruptcy to stop wage garnishments, it is important to look at what is a wage garnishment. The process will differ from state to state, so we’ll explore it from my experience here in New York.
To be able to start a wage garnishment, there has to have been some kind of lawsuit. If we are talking about a credit card, usually the person has missed payments and fallen behind on their account. As a result, the credit card issuer will say the person is in default of the credit card agreement.
Requirements to Enforce: Creditor Must File a Legal Action for the Debts and Obtain a Judgment Against You
After someone has defaulted debts, if the person doesn’t bring the account current, eventually the credit card issuer will start with sending demand for payment. If after sending notices for payment the entire debt arrears has not been cured, the creditors (or collection agencies) will likely sue the person for the amount due. Maybe the person appears in court and defends the case, maybe they don’t. For purposes of this article, let’s assume that the credit card issuer wins in court. They are awarded a money judgment for the amount they are suing for.
A money judgment is what gives a creditor the right to start enforcement against a person’s assets. Here in NYC, once a creditor has a money judgment, they will send the judgment to a marshal or sheriff for execution. If the creditor has information about where you work, they can direct the marshal or sheriff to start a wage garnishment. There is no such thing that they have to start a separate garnishment action.
Generally, you will receive a copy of a garnishment notice shortly before the execution will begin.
Earnings and Withholding: Understanding Wages, Federal Taxes, and My Money
There are several reasons for wage garnishment: to recover debts owed by employees, to recover damages when a court has awarded damages to a plaintiff, to collect child support, and to collect alimony. The most common form of wage garnishment is for federal taxes, which can be difficult to understand. Understanding the difference between your gross pay and your net pay, as well as how your federal withholding is calculated and how it can be changed, is an important part of your total compensation package and can help you make more informed decisions about your finances.
During What Periods May Money Be Deducted From My Paycheck?
If you’re out of work, or on a fixed income, the question of whether your income is exempt from garnishment is a critical one. If your income is exempt, the creditor or collector can’t collect on the debt using a wage garnishment. If you’re already in the midst of a wage garnishment, but think your wages are exempt, consult a wage garnishment lawyer immediately. If your income is not exempt, you’ll want to know how much you can expect to be garnished. The good news is that creditors can only garnish a certain percentage of your income.
Garnishments generally correspond to the payment arrangement you have for your personal earnings from work. If you get paid with weekly income, the garnishment can occur with each weekly payment. If you get paid in a biweekly pay period, then garnishment occurs twice a month.
Will My Spouse Be Affected By a Wage Garnishment Against Me?
Understand that a wage garnishment is a legal action that requires your employer to withhold a certain amount of money from each of your paychecks and send it directly to the company or person to whom you owe money.
While the laws of spousal liability vary around the country, here in New York, a person is not legally liable for the debts of their spouse.
Can I Offer a Payment Plan to Avoid a Garnishment?
Many people inquire whether they can offer a payment plan to avoid a garnishment. It’s a possibility. You can start off by contacting the marshal or sheriff that is handling the garnishment to see if they are authorized to discuss a payment plan.
If the marshal or sheriff is not authorized to discuss a payment plan, then you would want to contact the creditor directly, or a private collection agency if they are handling the account to discuss any negotiations with creditors.
Can I Request a Hearing to Stop the Garnishment?
In theory, you could file an order to show cause to stay attempt to protect your wages from garnishment. You likely have to prove that there was some defect in the garnishment documents. In the alternative, you will likely have to file a motion to vacate the judgment of your judgment creditors.
What’s the Difference Between Wage Garnishment and Bank Levy?
Wage garnishment is a process where part of your wages are taken by one creditor to pay off another. For example, your wages may be garnished to pay a defaulted student loan, or your wages may be garnished by your employer to pay an IRS tax bill. If you have more than one garnishment, you may be subject to multiple garnishments. If you have a garnishment, you may be able to get the garnishment reduced or stopped.
Can you file bankruptcy to stop wage garnishments?
Fortunately, you can file bankruptcy to stop wage garnishments. Stopping wage garnishments is likely one of the biggest reasons why people decide to file for bankruptcy.
When someone files for bankruptcy, they inure the benefit of the automatic stay. The Automatic Stay, which is found in Section 362 of the Bankruptcy Code, states that upon filing bankruptcy, there is an order for relief that goes into effect automatically that stops:
the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.
Fortunately, wage garnishments fall squarely within this definition.
One strategy that I always try to undertake, and that you should undertake if you file bankruptcy to stop wage garnishments, is to include the marshal or the sheriff handling the wage garnishment for notice purposes. The faster the marshal or sheriff receives notice of a bankruptcy filing, the faster they will halt the garnishment. While it is the responsibility of a creditor to stop enforcement of a wage garnishment if a bankruptcy is filed, that may take some time, and this is a strategy to have the wage garnishment stopped sooner.
Can I Claim Exemptions to Avoid Wage Garnishment Payments or Withholding?
If you have been served with a wage garnishment, you need to act fast, because garnishments can really hurt your disposable earnings. If you don’t act fast, you can expect your income to be slashed, since you will be required to pay your debt with a percentage of your income. You can ask for an exemption to avoid wage garnishment payments.
Exemptions are laws that declare certain property exempt from the enforcement of money judgments. Some exemptions for property include for social security benefits, family support payments, mandatory deductions, and public assistance, among other things.
Since garnishments often apply to post-tax, disposable earnings in a paycheck, there’s no real exemption that would apply.
Wage garnishments are a tool that creditors use to enforce and satisfy money judgments that they obtain. Unfortunately, regardless of the type of garnishment (whether it’s garnishment for child support, consumer debts, or unpaid taxes) wage garnishments can do a lot of damage to people, especially if you live paycheck to paycheck. If you’re exploring debt relief options, you should be aware that filing bankruptcy can stop wage garnishments.
If you would like to learn more about filing for bankruptcy to stop wage garnishments, or if you’re looking to file bankruptcy, contact the Law Office of Richard Kistnen today using the contact info below.