Using Chapter 7 Bankruptcy to Stop Wage Garnishment

Filing for Chapter 7 bankruptcy will stop most wage garnishments, but there are a few exceptions.

By , Attorney · Northwestern University School of Law

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 about wage garnishment and how the Chapter 7 automatic stay will put a temporary stop to wage garnishment.

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. But in most cases, including credit card balances, the creditor must file a lawsuit and win.

Once the creditor has a money 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 might be able to protect even more using exemptions. You can learn more by reading about 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 lift the automatic stay. However, the court is unlikely to lift the stay unless:

  • the creditor has a debt secured by collateral, such as a house or car, and
  • the creditor will lose money if forced to wait until the case ends.

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 or your attorney can send a copy of your bankruptcy filing to the creditor. This is a good way to go if you're filing shortly before the garnishment is scheduled to take place.

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. If that happens, the wage garnishment can continue. Here are the rules:

  • If you filed for bankruptcy previously 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.
  • 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.

Essentially, you cannot use serial bankruptcy filings to avoid wage garnishment indefinitely.

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.

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