Wage Garnishment and Bankruptcy
Wage garnishment occurs when a court issues an order that requires your employer to withhold a portion of your paycheck and send it directly to a person or entity to which you owe money. Generally, garnishment lasts until a particular debt is fully paid off. The debts for which a wage garnishment order may be entered include child support, student loans, taxes, and any debts that have been the subject of a collections lawsuit resulting in a judgment against you and a wage garnishment order. Except in the cases of child support, student loans, and taxes, a creditor cannot garnish your wages without first suing you, winning, and obtaining a court order.
If a creditor wins a lawsuit, and a money judgment is entered on its behalf, the creditor can garnish your wages by giving a copy of the court order to the local sheriff, who then sends it to your employer. Federal and state regulations govern how much of your paycheck may be garnished. Under federal law, the lower of (1) up to 25% of your disposable earnings or (2) the amount by which your weekly income exceeds 30 times the minimum wage may be garnished. However, in some states, a lower percentage limit is set for the amount of your wages that can be garnished. Different rules apply to child support, student loans, and taxes.
Your employer may not retaliate against you because your wages have been garnished to pay off a single debt. However, under federal law, you are not protected against retaliation when more than one creditor has garnished your wages or your wages are being garnished by a single creditor for two or more debts. Some state laws provide more protection against retaliation.
Fighting Wage Garnishment
You can protest wage garnishment by filing papers and proving to the court that you need more of your paycheck to pay off your expenses or that you qualify for an exemption. If the judge will not terminate the garnishment, in some cases, filing for bankruptcy can stop wage garnishment. However, you should be aware that bankruptcy will not stop garnishment of child support or other non-dischargeable debts.
Once you file for bankruptcy, an automatic stay will go into effect. This stops most collection activities, including wage garnishments, as long as the stay is in effect. The court will notify your creditors of the stay, but if the creditors are not alerted in time to stop wage garnishment, you can give notice of the bankruptcy to your employer’s payroll department, as well as the levying officer handling the wage garnishment (in most cases, the sheriff).
An automatic stay will not affect child support or alimony, since these are priority debts that are non-dischargeable. When any creditor that is affected by the stay wants to continue its collection efforts, it must prove to the court there is good cause to lift the stay. Generally, unsecured creditors that want to continue garnishing your wages cannot present good cause to get a stay lifted.
Other than when the bankruptcy court lifts the stay on a creditor’s motion, an automatic stay will end when you receive a bankruptcy discharge or when the case is dismissed without a discharge. If the debt at issue was included in the discharge, the creditor will not be able to resume wage garnishment. However, if you do not get a discharge, the creditor can continue wage garnishment.
In some cases, you can also recover back wages that were garnished within 90 days prior to your filing of bankruptcy, when they are over $600 altogether (this amount changes periodically) and you have exemptions that cover them.
