Bankruptcy and wage garnishment are two areas of financial distress that often intersect. Wage garnishment is a court-ordered process where a portion of an individual’s earnings is withheld by an employer for the payment of a debt.
Bankruptcy provides an avenue for individuals to handle insurmountable debt. When a person files for bankruptcy, it can impact ongoing or upcoming wage garnishments.
Automatic stay shields garnishments
An automatic stay is immediately put into effect when you file for bankruptcy. This legal provision halts most actions by creditors to collect debts, including wage garnishments. The automatic stay continues throughout the bankruptcy case unless a creditor petitions the court to lift the stay and the court agrees.
Bankruptcy type and its effect on garnishments
The type of bankruptcy filed also influences the outcome of wage garnishments. Chapter 7 liquidates non-exempt assets to pay off unsecured debts. The garnishment must permanently stop if the debt causing the garnishment is discharged in bankruptcy.
In contrast, Chapter 13 bankruptcy involves a repayment plan where you pay off debts over three to five years. During this period, wage garnishments are stopped. After completion of the payment plan, any remaining dischargeable debt causing a garnishment is wiped out.
Discharge and post-bankruptcy garnishments
After completing the bankruptcy process and receiving a discharge, you’re released from personal liability for certain types of debts. These debts include credit card debt, medical bills and personal loans. If the wage garnishment was for a deficit of this type, it cannot be restarted after the bankruptcy discharge.
Bankruptcy can provide a powerful tool for dealing with wage garnishments. Understanding your rights and responsibilities during the process is beneficial, so work with someone familiar with this situation.