Bankruptcy is able to protect your paycheck because it is more powerful than most creditors’ garnishment court orders.
Bankruptcy Stops Wage Garnishments
A garnishment is a court order which requires your employer to pay a portion of your paycheck to a creditor and not to you. Usually a creditor can’t get a garnishment order without first suing you and getting a court judgment saying that you owe the debt.
A judgment is the court’s determination that you do indeed owe the debt, how much you owe, and the amount of any additional costs you must pay because of the lawsuit and judgment. A judgment enables a creditor to use various ways to get money or property out of you to pay the debt, with probably the most common one being wage garnishment.
Filing bankruptcy gives you the “automatic stay,” the federal law stopping virtually all collections. The automatic stay can stop the garnishment of your paycheck at any of the following stages of the process:
- before the creditor files a lawsuit, by stopping that lawsuit from being filed in the first place, thus preventing the creditor from getting a garnishment order
- shortly after a lawsuit is filed, by preventing that lawsuit from turning into a judgment, and again into a garnishment
- immediately after a judgment is entered, by stopping the creditor from preparing and filing a garnishment order with the court
- after a garnishment order is signed by the court where the judgment was entered, by defeating the garnishment court order with a more powerful bankruptcy “automatic stay”
So your bankruptcy filing stops present garnishments from being effective and prevents future garnishments from happening. It also stops new garnishments on a prior judgment, for example, when a creditor finds out about your new employer.
Garnishments Stopped Permanently
Bankruptcy stops most present garnishments and prevents future ones permanently. This happens when a debt is discharged (legally written off) in the bankruptcy case, as most debts are. Once a debt is discharged, under Section 524(a)(2) of the Bankruptcy Code an injunction is imposed against the collection of that debt every again, by any means including by garnishment. So in those situations the bankruptcy filing stops and prevents garnishment forever.
Garnishments Stopped Only Temporarily
Garnishments are only temporarily stopped by your bankruptcy filing if the debt is one of the special ones that are not discharged in a bankruptcy case, meaning that you would continue to owe them after the case is done (at least as long as you file a Chapter 7 “straight bankruptcy” case—some of these debts are paid off in a Chapter 13 “adjustment of debts” case). These special not-discharged debts includes certain taxes, most student loans, and a few other kinds of debts.
The automatic stay preventing the garnishment is in effect only from the time the case is filed until the entry of the discharge usually about three months later in a Chapter 7 case. So, for example, if the IRS was garnishing your wages before the filing of your bankruptcy to collect on a tax that is not being discharged, the IRS would have to stop when you file bankruptcy because of the automatic stay. But that expires when the case is over so the IRS could resume garnishing then. But in the meantime that would give you time to make arrangements with the IRS for monthly payments on that debt, which you could hopefully afford to do after the discharge of your other debts.
Certain Rare Kinds of Wage Garnishments Not Stopped
Under Chapter 7, wage garnishment to pay child and spousal support obligations are not stopped by the automatic stay, for either current or back support. An ongoing garnishment for support will not be affected by a bankruptcy filing. And a garnishment for support could even start up for the first time during your bankruptcy case.
However, a Chapter 13 “adjustment of debts” does stop garnishments for back child and spousal support, and provides a way to catch up on back support while under the protection of the bankruptcy court. Even Chapter 13 does not affect garnishment for ongoing monthly support.
Present and Past Wage Garnishments
We’ve just covered the effect of bankruptcy on garnishments of wages due immediately after the bankruptcy filing or later. But what about garnishment orders that go into effect very shortly before filing bankruptcy? For example, what if you’re rushing to file bankruptcy after a judgment is entered, but your bankruptcy is filed and the automatic stay goes into effect a day or two after the garnishment order is signed but before any money comes out of your paycheck? And how about after the money has been paid by your employer to the creditor, days or even weeks before your bankruptcy filing? Under what circumstance could you possibly get that money back? My next two blog posts will get into these questions about very recent and past garnishments.