Rules for Stopping Wage Garnishment with Bankruptcy

Instructor: Ian Lord

Ian has an MBA and is a real estate investor, former health professions educator, and Air Force veteran.

It's not uncommon for a person filing bankruptcy to have wage garnishments for prior financial problems. In this lesson, we'll examine the rules surrounding wage garnishments after filing for bankruptcy.

Stopping Wage Garnishment in Bankruptcy

Bob has been having a tough time with his personal finances in the last few years. Last year he was sued by his credit card company for failing to pay his bills and had a judgment entered against him in court for the debt. The credit card company used the judgment to garnish Bob's pay, taking 25% of Bob's take-home paycheck. Bob's financial troubles have kept growing, and he filed for bankruptcy partially because he heard filing will stop his garnishment. Let's help Bob go over the rules for stopping garnishments in bankruptcy

A bankruptcy filing offers Bob protection from most creditors because he is financially incapable of repaying his debts. In bankruptcy court, a judge can discharge Bob's debts, making Bob no longer legally obligated to pay. Unsecured debt such as credit cards and personal loans are often discharged; a garnishment issued on these debts can be cancelled when Bob files for bankruptcy.

Automatic Stay

Upon filing for bankruptcy Bob gets an automatic stay from most cases of wage garnishment. As part of the filing process Bob has to list his garnishment among his other creditors. Bankruptcy filing compels the employer to cease withholding employee pay to satisfy garnishments. If the creditor wants to resume garnishment, it will have to petition the court to restart the withholding. Since Bob's wages are being garnished to satisfy unsecured debt, the garnishment will stop immediately as a temporary measure. The filing paperwork allows the employer to be informed of the stay by the court, but Bob can expedite the process by personally taking the bankruptcy papers to his payroll department.

The automatic stay will stop under one of three circumstances. The bankruptcy court will discharge Bob's debt, making the stay for that specific garnishment permanent. The bankruptcy case could be dismissed, in which case the stay would be lifted and the garnishment could be restarted. The court can lift or remove the stay if the creditor can show good cause; however, a simple desire to restart the garnishment to collect the debt is not sufficient for this purpose.

Domestic support cannot be discharged in bankruptcy. If Bob's pay was garnished in order to satisfy child support or alimony payments the garnishment would remain in place.

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