Applying Decades Of Experience To Solve Modern Legal Issues

Suspending Wage Garnishment with Chapter 7 Bankruptcy Proceedings

On Behalf of | May 18, 2020 | Bankruptcy

Many creditors, in an attempt to collect on a debt, garnish the borrower’s wages. In most, but not all cases, creditors must first get a court order before taking this step, unless the matter involves child support, taxes, or student loans. Fortunately, initiating bankruptcy proceedings can stop a creditor from continuing to garnish a person’s wages or from even seeking a wage garnishment order, so if your paycheck is currently being garnished, you should contact an experienced Iowa bankruptcy lawyer who can walk you through your legal options.

What is Wage Garnishment?

Once a creditor obtains an order to garnish wages, it is forwarded to the borrower’s employer, who will then be directed to hold back a portion of the individual’s wages each pay period and send them directly to the creditor. Although there are limits to how much a creditor can garnish from a paycheck, garnishment can still make it difficult, if not impossible, for a borrower to pay off all of his or her debts. This could prove to have particularly serious consequences in the current economic climate, where many are financially stressed due to the COVID-19 pandemic.

Chapter 7 Bankruptcy and Wage Attachment

Fortunately, it is possible to stop wage garnishment by filing for Chapter 7 bankruptcy, which imposes an automatic stay on creditors and prohibits them from taking any collection activity against the petitioner while the bankruptcy case is pending. Because wage garnishment falls under the definition of a collection action, a Chapter 7 automatic stay (with the exception of child support payments) immediately stops any wage garnishments. While creditors are allowed to ask a bankruptcy court to lift an automatic stay, most courts aren’t willing to do so, unless the creditor has a debt secured by collateral, or the creditor will lose money if required to wait until the case’s conclusion.

How do Employers Know to Stop Garnishing Wages?

When a petitioner files for bankruptcy, he or she is required to provide the court with a list of their creditors, at which point, the court will notify all the creditors of the filing and direct them to begin the process of suspending wage garnishment. It is even possible to speed the process along by sending a copy of the bankruptcy filing directly to the creditors themselves. Many petitioners are encouraged to do this if a garnishment is scheduled to take place soon after the bankruptcy filing.

Can Garnishment be Reinstated?

Those who have filed for bankruptcy on a prior occasion, may be subject to wage garnishment again within 30 days of filing. However, this only applies to petitioners who had bankruptcy proceedings dismissed within a year of the current filing. If, on the other hand, someone filed for bankruptcy twice in the past year, he or she can expect to be denied an automatic stay completely.

What Happens when a Bankruptcy Case Ends?

The automatic stay that prevents wage garnishment during bankruptcy proceedings ends when the case is resolved. If, however, the proceedings resulted in the discharge of the debt in question, then the creditor will be permanently prohibited from continuing to garnish the borrower’s wages. If a bankruptcy case is dismissed before a debt is discharged, or the petitioner wasn’t released from the debt that was the subject of the garnishment, then the creditor can continue to garnish that individual’s wages.

Set Up an Initial Case Review Today

Wage garnishment can make it difficult to repay other debts, while also staying on top of day-to-day expenses. To speak with an experienced bankruptcy lawyer about whether you qualify for an automatic stay of these garnishments, please call Telpner Peterson Law Firm, LLP at 712-309-3738 today.