How to stop a wage garnishment by filing a bankruptcy
When a bankruptcy case is filed, a stay is automatically and immediately imposed which stops nearly all creditor collection actions. Any collection action that occurs after the case is filed would constitute a violation of the stay and can come with severe penalties against the creditor and, as such, just informing the creditor of the bankruptcy filing is usually sufficient to ensure that the wage garnishments will stop.
How to recover a wage garnishment through bankruptcy
The strategy of how wage garnishments can actually be recovered breaks down by the specific timing of when the garnishments occur.
Preferential Transfers: 11 U.S.C. §547
For wage garnishments that occur more than 90 days prior to the filing of your bankruptcy case, these are usually not recoverable. This is just one of many reasons why it may be important to start planning your case well before the creditors are knocking at your door.
For wage garnishments that occur 90 or less days prior to the filing of your bankruptcy case, these would be considered preferential payments and could either be recovered by the Chapter 7 trustee or by yourself if you can show that the funds would be exempt. The major hurdle in this situation is that the procedure for forcing a creditor to turn over these funds requires the filing of an adversary proceeding which can be a lot of work even in a simple case. However, it may also be possible to work directly with the creditor to have the funds recovered without seeking the involvement of the court.
Lien Avoidance: 11 U.S.C. §522(f)
For wage garnishments that are still pending at the time of filing your bankruptcy case, these can often be avoided by virtue of the fact that the pending garnishment has created a lien (security interest) in the funds. The test of whether this lien can be avoided and the funds returned to you is, again, whether the funds can be claimed as exempt. The process for turnover is more simple than an adversary proceeding and can usually be completed by the filing of a relatively simple motion.
Violation of Stay and Discharge: 11 U.S.C. §§362, 524
For wage garnishments that occur after filing of your bankruptcy case, these garnishments would constitute violations of the bankruptcy stay and could be recovered pursuant to the enforcement provisions of the stay and the court’s contempt power. Not only can the funds be recovered, but also violations of the stay can also cause the creditor to be liable for actual damages, punitive damages, and payment of your attorney’s fees.
Start Planning Early
Each of these recovery methods can mean that your otherwise simple case can become increasingly complex. The best method to avoid this is to start planning for a bankruptcy well before you are at risk of losing your property.
