Using Chapter 7 Bankruptcy to Stop Wage Garnishment
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Having your wages garnished is one of the most upsetting things that can happen to a person. Wages are garnished after a creditor gets a judgment against you that you don't pay and then goes back to the court to get the order of garnishment. When this goes into effect, money goes right from your paycheck to the creditor without ever getting to you. If this happens and you need it to stop, you need to understand the rules for wage garnishment under chapter 7 bankruptcy.
Chapter 7 Bankruptcy and Wage Garnishment
In the cases of most types of wage garnishment, with a few possible limited exceptions for non-dischargeable debts like past due child support, bankruptcy under Chapter 7 of the United States code should put a permanent stop to your wage garnishment.
When you file for Chapter 7 bankruptcy, the law immediately begins protecting you from creditors by imposing an "automatic stay." The stay orders creditors to stop any and all collection activities going on against you. Garnishment, thus, is ceased upon filing. If you really need the garnishment to stop right away, you may even want to consider an emergency filing. This may cost a little more, but it lets you get the stay in effect much faster and then gives you an extra 2 weeks after the emergency filing to get all of the somewhat complicated bankruptcy paperwork in order.
Once you have filed, the chapter 7 bankruptcy should take care of the debts so that the garnishment doesn't start again. Chapter 7 works by requiring you to submit to the sale of non-exempt assets, which become part of the bankruptcy estate. Some of your home equity, your retirement accounts, and a limited portion of personal property is safe, but otherwise, this does mean you do have to have some things sold in most bankruptcy cases.
Money that is made from the sale or that was in non-retirement accounts is then distributed to creditors. At that point, any eligible debts are discharged, and you no longer owe them. This won't apply to student loans, since those aren't eligible, and it also won't apply to things like a mortgage if you decide to keep the house since a mortgage is a secured debt that has to be paid if you want to hold on to the collateral. Otherwise, debts are discharged, and garnishment should be a thing of the past.
Is Chapter 7 The Best Chapter to File Under?
Whether chapter 7 is the best option for you is going to depend on your circumstances. The main factor in determining if you should file chapter 7 is if you can qualify. Based on changes to the law that occurred in 2005, you can qualify if:
- Your income falls below the median income level in the state where you reside.
- You have no disposable income to repay debts after required obligations are fulfilled, thereby allowing you to pass a means test.
If you don't qualify, you'll have no choice but to file under another chapter, which for consumers is almost always going to be a chapter 13. If you qualify, you'll have to assess whether you are comfortable having your assets turned over, as is required in chapter 7, or whether you wish to try to file a chapter 13 bankruptcy instead.
When you are facing financial trouble, you should take steps as soon as you can to get the help you need. A lawyer can assess your situation and your garnishments and help you decide if bankruptcy is right for you. He or she can then help you file for bankruptcy and to complete all the requirements throughout the legal process.
For non-bankruptcy options, see How to Stop a Wage Garnishment Without Bankruptcy.
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