If you’re unable to pay your debts you could be subject to wage garnishment, which is where a court requires your employer to pay a portion of your wages directly to a creditor that you owe money to. Many people who are subject to wage garnishment may consider filing for bankruptcy, either as a way to potentially stop the garnishment, or simply due to their financial circumstances. They may wonder how bankruptcy affects wage garnishment – will it stop the garnishment? The short answer is yes – filing for bankruptcy will immediately stop most wage garnishments.
Chapter 7 bankruptcy is a process by which an individual’s debts are liquidated through bankruptcy court proceedings. Only a Chapter 7-type bankruptcy will cause a wage garnishment to cease. Upon filing for bankruptcy, the bankruptcy court will issue an automatic stay, which will immediately stop any wage garnishments that are in place (along with any evictions, foreclosures, or other debt-collection actions.)
However, it’s important to note that this automatic stay will only put a stop to wage garnishments that are the result of commercial debts (such as mortgages, auto loans, medical bills, and credit cards.) It will not stop child support garnishments or in most cases, those related to delinquent federal or state taxes.
That said, not everyone will be a candidate for filing Chapter 7 bankruptcy. In order to qualify, your monthly income (in the 6 months prior to filing) will have to be at or below your state’s median household income for a family of your size. If your income is above this level, you’ll then have to pass what’s called a “means test." This is where the bankruptcy court examines your income and expenses to determine if you should have enough disposable income to make payments on your debts. If they find that you do, you’ll be unable to file for Chapter 7 bankruptcy. Those who are deemed ineligible for Chapter 7 bankruptcy can instead file a Chapter 13 bankruptcy (in which debts are consolidated instead of liquidated) – however Chapter 13 bankruptcy doesn’t stop wage garnishments.
The decision to file for bankruptcy should not be taken lightly. You could be forced to sell some of your assets, and although you should be able to keep your home and car, in most cases you won’t be relieved of these debts. The entire process takes an average of 4 to 6 months and will cost anywhere from $300 to more than $1,000 in filing and attorney fees. But perhaps most importantly, filing for bankruptcy impacts your credit negatively and can remain on your credit report for up to 10 years. This could make it significantly harder to obtain mortgages, automobile loans, and other types of credit. Questions regarding the bankruptcy process are best directed to a qualified bankruptcy attorney.
- Nolo, How Bankruptcy Stops Your Creditors: The Automatic Stay: http://www.nolo.com/legal-encyclopedia/how-bankruptcy-stops-creditors-automatic-29723.html
- United States Courts, Chapter 7 Bankruptcy: http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx