There are numerous legal avenues for debt collection. Typically, businesses and individuals start by sending past-due notices or making collection phone calls. Eventually, if repayment is still not forthcoming, the party trying to collect on the debt may take more aggressive steps.
Going to civil court is a popular approach, as the courts can enter rulings that make it easier to collect on a debt. Wage garnishment is a perfect example. A company that has not received adequate or timely repayment from a borrower or debtor can garnish their wages with a court order.
A certain amount of what that individual makes will then go directly to the creditor when they get paid. If your budget is already razor-thin, a garnishment could leave you unable to afford the basics.
Bankruptcy can be a solution for those struggling with or facing possible future garnishment.
How does bankruptcy protect you?
As soon as you file for bankruptcy, an automatic stay will temporarily stop collection activity. If you are about to go to court with a creditor, that automatic stay might mean that the courts temporarily dismiss the suit against you. In some cases, the automatic stay will stop a wage garnishment currently affecting your income.
However, especially if you file a Chapter 7 bankruptcy, there are limits on how effective the automatic stay is at stopping those existing garnishments. If the garnishment is the result of a court order, like past-due child support enforcement efforts, the automatic stay may not end the garnishment. For many people, it is far better to prevent the garnishment in the first place than to try to stop one after it has already reduced their income.
Chapter 13 bankruptcy can be a powerful tool for those facing garnishment
Chapter 7 bankruptcy is useful for those with below-average income and not much property at risk of liquidation. Those with more assets or higher income may want to consider a Chapter 13 bankruptcy.
A Chapter 13 filing gives you the opportunity to renegotiate with your creditors. You will be in a better position to negotiate a repayment plan that doesn’t involve garnishment, as a multi-year repayment plan is necessary in a Chapter 13 filing.
Reviewing your finances and learning a bit more about the different forms of bankruptcy can help you avoid garnishment or potentially end a garnishment affecting your financial stability.