It's payday, money's been a little tight lately, and you're really looking forward to receiving your paycheck. If one of your creditors has gotten a judgment against you for money you owe, and if the creditor has used the judgment to garnish your wages, you might be in for a bit of a shock. Garnishment obligates your employer to withhold a percentage of your pay and send it to your creditor.
The Biggest Problem With Garnishment
State and federal laws both limit how much a creditor can garnish from your wages, but if your income and your bills are just about equal, even a small deficit can make a big difference. If you don't have enough left of your paycheck to cover your other bills, garnishment can start an avalanche that results in other, even more serious problems. You could fall behind on your mortgage or auto payment and risk foreclosure or repossession. Bankruptcy can stop garnishment in its tracks.
When you file for bankruptcy, an automatic stay goes into effect the moment the court receives your bankruptcy petition. This stay prevents all your creditors from doing anything at all to try to collect money from you. They can't call you. They can't file lawsuits against you. They can't use a judgment already awarded in a lawsuit to initiate garnishment of your wages, and they most definitely can't continue to garnish your wages if they've already started.
Garnishment After Bankruptcy
Two parties have the potential to violate your bankruptcy stay: your employer and your creditor. After you file, give a copy of your petition to your employer immediately so the company knows it should stop sending your wages to your creditor. Your creditor will receive a copy of your petition from the court, so you don't have to put that party on alert to cease and desist with the garnishment -- although you can send a copy as well if you want to.
Getting Your Money Back
Reputable creditors will immediately stop the garnishment procedure when they're notified of your bankruptcy, although one of your paychecks may get caught in the middle -- the one you receive the same week you file. What happens to this money depends on individual state law. In some states, your creditor can keep this money; in others, your creditor must forward it to your bankruptcy trustee so the trustee can apportion it among all your creditors. In some jurisdictions, the law might even require the creditor to return the money to you. Unfortunately, garnishments made before you filed for bankruptcy are gone for good -- your creditor gets to keep that money.
If you have a child from a previous relationship, and if the state is garnishing your pay for child support, different rules apply. Child support isn't dischargeable in bankruptcy, either current payments or past-due amounts. Therefore, if you're paying your support through income withholding, bankruptcy doesn't stop this. Depending on what kind of bankruptcy you file, however, you might get a little relief. If you file for Chapter 13, a proceeding in which you agree to repay your creditors with your excess income over three to five years, you can sometimes include past-due child support in the debts you're repaying. If the court is garnishing your wages for both current and past-due support, you may be able to stop the portion of the garnishment that's going to past-due support if you file for Chapter 13 protection.