If your wages are being garnished, or you fear they soon will be, filing for Chapter 7 bankruptcy will stop the garnishment (also called wage attachment) in most cases. This happens because bankruptcy's automatic stay prohibits most creditors from continuing with collection actions during your bankruptcy case.
Read on to learn what wage garnishment is, when the automatic stay in Chapter 7 bankruptcy will put a temporary stop to wage garnishment, and what happens to the garnishment once your case is over.
What Is Wage Garnishment?
Most creditors cannot garnish your wages without first suing you in court and getting a money judgment. (There are a few exceptions, for example, for student loans, taxes, and child support.) Once the creditor has a judgment, it can get an order to garnish your wages from the court. The sheriff or marshall forwards the order to your employer, who then holds back a portion of your wages each pay period and sends that amount to the creditor.
There are limits to how much the employer can garnish from your paycheck each month. And you may be able to protect even more using exemptions. (You can learn more in our article on wage garnishment laws.)
Chapter 7 Bankruptcy and the Automatic Stay
When you file for Chapter 7 bankruptcy, the law immediately begins protecting you from creditors by imposing an automatic stay. The stay prohibits creditors from taking any collection activity against you during your bankruptcy case. Because wage garnishment is a collection action, wage garnishments must stop once you file for bankruptcy. There are a few exceptions to this prohibition -- most notably, child support collections will not be stopped by the automatic stay.
A creditor can ask the bankruptcy court to remove the automatic stay, but in most cases the court will not do so. (Learn more about when the court might lift the automatic stay.)
How Will Your Employer Know to Stop the Garnishment?
When you file for bankruptcy, you must provide the court with a list of your creditors and their addresses. The court will notify each creditor that you have filed for bankruptcy. The creditor must then take steps to suspend the wage garnishment. If you want to speed things along, however, you can send a copy of your bankruptcy filing to the creditor yourself.
Short or No Automatic Stay for Repeat Bankruptcy Filings
If you have a recent bankruptcy in your past, the automatic stay will end after a short period of time. If that happens, the wage garnishment can continue. Here are the rules:
- If you previoulsy filed for bankruptcy and it was dismissed within one year of your current filing, the stay will last for 30 days. You can ask the court (by formal motion) to extend this time. You'll have to prove that you made your second filing in good faith. (Essentially, you cannot use serial bankruptcy filings to avoid wage garnishment indefinitely.)
- If you previously filed for bankruptcy twice in the past year, the automatic stay won't kick in at all when you file the third case. But again, you can ask the court to impose the stay.
What Happens to the Garnishment When Your Bankruptcy Case Ends?
The automatic stay ends when your bankruptcy case ends. However, if your bankruptcy discharges the debt that was the subject of the wage garnishment (which will happen in most situations), then the creditor cannot continue the wage garnishment.
Of course, if your bankruptcy case is dismissed before you receive a discharge, or the particular debt that was the subject of the wage garnishment was not wiped out, then the creditor can continue to garnish your wages.
Talk to a local lawyer to discuss your options to stop wage garnishment with or without bankruptcy.