Filing for bankruptcy activates an automatic stay, a powerful legal protection that halts most collection efforts, including wage garnishments. Here’s how it works:
What Is an Automatic Stay?
An automatic stay is a court-ordered injunction that goes into effect immediately upon filing for bankruptcy. It prohibits creditors from pursuing collection activities, such as:
- Wage garnishments
- Bank account levies
- Debt collection calls
This legal safeguard provides immediate relief and allows individuals to address their financial challenges without ongoing harassment.
Chapter 7 vs. Chapter 13 Bankruptcy
The impact of bankruptcy on wage garnishment largely depends on the type of bankruptcy you file: Chapter 7 or Chapter 13.
Chapter 7 Bankruptcy
Known as “liquidation bankruptcy,” Chapter 7 eliminates most unsecured debts, offering a fresh financial start. Here’s how it addresses wage garnishment:
- Immediate Relief: Wage garnishments cease as soon as the automatic stay takes effect.
- Debt Discharge: Most unsecured debts, like credit card balances and medical bills, are discharged.
- Exceptions: Certain obligations, such as child support or recent tax debts, are non-dischargeable and garnishments for these debts may continue.
Chapter 13 Bankruptcy
Chapter 13 is a “reorganization bankruptcy” designed for individuals with regular income. It allows for a structured repayment plan over three to five years. Here’s its impact on wage garnishment:
- Garnishment Stoppage: Like Chapter 7, the automatic stay halts wage garnishments.
- Repayment Plan: Debts are consolidated into a manageable payment plan.
- Long-Term Relief: Chapter 13 can help address arrears on secured debts like mortgages or car loans, preventing future garnishments related to these obligations.
Case Study: Stopping Wage Garnishment with Bankruptcy
Background: Sarah was struggling to pay off her credit card debt after losing her job. A creditor obtained a court order to garnish 20% of her paycheck, leaving her unable to cover rent and utilities.
Action Taken: After consulting a bankruptcy attorney, Sarah filed for Chapter 7 bankruptcy. The automatic stay immediately stopped the garnishment, giving her breathing room to address her financial situation.
Outcome: Sarah’s unsecured debts were discharged, and she no longer faced wage garnishment. This allowed her to regain financial stability.
Read Also- What Do I Need to Bring to My First Meeting with a Bankruptcy Attorney?
Pros and Cons of Bankruptcy for Wage Garnishment
While bankruptcy can effectively stop wage garnishments, it’s essential to weigh the advantages and drawbacks:
Pros
- Immediate Relief: Automatic stay halts garnishments instantly.
- Debt Discharge: Most unsecured debts are eliminated in Chapter 7.
- Structured Repayment: Chapter 13 offers a manageable repayment plan.
Cons
- Impact on Credit: Bankruptcy remains on your credit report for up to 10 years.
- Cost: Filing fees and attorney costs can be significant.
- Non-Dischargeable Debts: Obligations like child support and certain taxes remain unaffected.
Frequently Asked Questions
1. Will bankruptcy stop all wage garnishments?
Most garnishments stop due to the automatic stay. However, garnishments for non-dischargeable debts like child support may continue.
2. How long does it take for garnishments to stop after filing?
Garnishments typically cease within days of filing for bankruptcy, once the court notifies creditors.
3. Can bankruptcy eliminate tax debt garnishments?
Some tax debts may be discharged in bankruptcy, but others, such as recent tax obligations, may not qualify.
Let’s Summarize…
Bankruptcy can provide critical relief from wage garnishment, with the automatic stay offering immediate protection. While Chapter 7 discharges most unsecured debts, Chapter 13 creates a repayment plan to address obligations. Understanding your options and seeking legal advice can help you regain control over your finances and move toward a more stable future.