If you owe debts you can’t repay, you are probably facing debt collection efforts from creditors. You may be the target of phone calls and letters from collection agencies, or even lawsuits filed by creditors to whom you owe money. Of all the consequences of owing money, however, one of the most significant is wage garnishment: a court order that directs your employer to take money right out of your paycheck and send it to a creditor. For those who are struggling to get by, wage garnishments lead to deeper financial problems. In fact, a wage garnishment can be the final straw that pushes a debtor into bankruptcy. Once a debtor files for bankruptcy, however, there’s some good news: A legal protection called the automatic stay goes into effect immediately, which stops most wage garnishments and prevents creditors from seeking new garnishments while the bankruptcy case is proceeding. A wage garnishment is a court order requiring an employer to withhold a set amount of an employee’s pay and send it to the person or institution named in the order. Garnishments for certain types of debts are issued automatically. For example, since 1988, all child support orders include an automatic wage withholding order. If you owe back taxes, the IRS can garnish your wages. Student loan defaults may also result in a wage garnishment by the Department of Education or any agency trying to collect the loan on its behalf. Unless you owe child support, back taxes, or defaulted student loans, however, a creditor must file and win a lawsuit against you and get a court order requiring you to pay the debt. With this court order in hand, the creditor can seek a wage garnishment.
There are legal limits on how much of an employee’s wages may be taken to satisfy particular debts. For court judgments, the maximum is 25% of the employee’s disposable earnings (this is the federal limit; some states set a lower percentage). Up to 15% of an employee’s pay may be garnished for student loan debt. For child support and tax debts, a much higher percentage may be taken. The moment a debtor files for bankruptcy, the automatic stay goes into effect. The automatic stay stops most types of debt collection efforts immediately, including wage garnishments. By stopping all debt collection activity, the automatic stay gives debtors a bit of a break from the financial crisis that drove them to bankruptcy. It also gives the power over a debtor’s financial affairs to the bankruptcy court, rather than leaving it to the persistence of individual creditors. The stay ensures that the court will decide which property the debtor gets to keep, which property the debtor will have to give up, and which creditors (if any) are entitled to repayment. If the debt that led to the wage garnishment will be wiped out in bankruptcy, filing for bankruptcy will stop the garnishment permanently. For these debts, which include credit card bills, medical bills, and court judgments, the automatic stay will stop wage garnishments and, because those debts will likely be wiped out in bankruptcy, that will solve the problem once and for all.
Those who file for Chapter 7 bankruptcy can get these debts discharged at the end of their case; Chapter 13 filers can include these debts in their repayment plan, rather than facing wage garnishments. However, not all debts may be discharged. For some of these debts, including back taxes, filing for bankruptcy will temporarily stop collection efforts, including through wage garnishment. Once the bankruptcy case is over, however, you will still owe these debts and the automatic stay will no longer protect you from efforts to collect them. If you owe child support, filing for bankruptcy won’t affect an existing wage garnishment. And, because child support obligations aren’t wiped out in bankruptcy, the garnishment will continue before, during, and after a bankruptcy case, just as if you had never filed for bankruptcy. (Because bankruptcy will discharge many other types of debts, however, at least you should be left with more money to pay those debts that survive bankruptcy.)
How to Stop Wage Garnishment Before Your Next Payday
If you are facing a wage garnishment and can’t afford to have even one paycheck garnished you can stop it by filing for bankruptcy. As soon as a bankruptcy case is filed your bankruptcy judge will issue an order to all of your creditors that will require them to stop any type of collection activity including wage garnishment.
Hire an Attorney
Bankruptcy can be a minefield with problems lurking at every turn. If you don’t know what you are doing you could be in for a world of hurt. If you need to file bankruptcy quickly you especially need a lawyer. Don’t go this battle alone. It could end up costing you a lot more than the 25% of your wages you saved by filing on your own.
Pay Your Legal Fees and Your Court Costs
Before you can file a chapter 7 bankruptcy you will need to pay your attorney and the filing fee that is charged by the court. It is important to understand that this is by no means everything that is involved in a bankruptcy case. The typical bankruptcy filing is between 45-60 pages of information on you and your finances. The court allows you to do an emergency filing to stop the garnishment and only requires you to file the first three pages of that big stack. Then, you and your attorney have an additional two weeks to get everything else drafted and filed with the court. As soon as your bankruptcy is filed the bankruptcy court will issue an order that can be provided to your employer and will stop the garnishment. When timing your bankruptcy filing you need to be aware of when your employer processes payroll. If you get paid on Friday but your employer processes payroll on Tuesday then in order to stop the garnishment of the Friday paycheck it will be necessary to file your bankruptcy before it is processed on Tuesday. That is not to say you won’t get that money back if they do garnish it after you have filed bankruptcy, but if your goal is to keep as much of your money as possible you will want to file the bankruptcy before payroll is processed. If you have received a notice of wage garnishment, sometimes referred to as income withholding, it can be very stressful. While this type of court order is no joke, it’s important not to panic.
Challenge the Wage Garnishments
Before you make any payments to your creditor, carefully review the information in your demand letter. Make sure the debts you are being threatened with wage garnishment over are legitimate. Verify that they are not debts that have already been paid. Confirm that they are indeed your debts and not someone else. If you find errors in the information you can file a written objection to the wage garnishment.
Negotiate a Payment Plan
In some instances, you can negotiate a payment plan with your creditor to stop wage garnishment. This is only an option however if the wage garnishments have not yet started, but you have been threatened with a final demand letter. Most creditors are willing to work out a payment plan with you rather than file the expensive forms and go through the legal process of garnishing your wages. At the end of the day, your creditor just wants their payment; they don’t care how they get it. Once you have successfully settled on a payment plan, stick to it, do not allow yourself to fall behind on your new payments. It is highly recommended that after you have stopped wage garnishment that you create a budget for yourself to stay on the right path and keep yourself out of debt in the future.
Contact a Credit Counseling Service
Depending upon your specific situation, speaking to a Credit Counseling Service (CCS), could help you avoid wage garnishments. A CCS is a not-for-profit company that assists you in working with your creditors to get your debts paid through negotiating payment plans. A CSS will act as a middle-man for you and may have better odds of negotiating with your creditors than you do, as they are more familiar with the laws regarding wage garnishment. They will also help you develop a financial plan going forward to help you avoid this situation from occurring in the future.
Consider a Debt Consolidation Loan
Believe it or not you can use a debt consolidation loan to stop wage garnishment from happening. A debt consolidation loan is usually an unsecured personal loan that is used to pay off existing debts. However, in some cases you may be required to use collateral, such as your home or car in order to qualify for a debt consolidation loan. It is best to work with a financial institution you trust when using a debt consolidation loan to stop wage garnishment. However, if you cannot afford the payments on the consolidation loan, this may not be your best option, as you will only fall further into debt.
Look into a Debt Settlement Program
Debt settlement and debt forgiveness programs can also be an option to stop wage garnishment. The debt settlement company will essentially take over communication with your creditors and attempt to negotiate a lower balance owed. Often times, your creditor will be willing to negotiate a settlement amount rather than go through bankruptcy. However, it is important to know that this option often comes with expensive fees and in some situations can damage your credit score even further. You really need to weigh the pros and cons of this option before proceeding; it is not the magical fix that it often seems to be.
File for Bankruptcy
Filing for bankruptcy to stop wage garnishment should be the last resort. If none of the options work for you, and you truly cannot afford to have your wages garnished, then it’s time to contact a bankruptcy attorney. Filing for bankruptcy is a long and stressful process so it is important to try other options first. Bankruptcy will stay on your credit history for at least 10 years, which can have serious effects on your ability to buy or rent a home, get a car loan, and in some case can even affect your job opportunities. That being said, sometimes it is the only option to avoid wage garnishment. If you’ve fallen behind on bill payments, your employer might start taking money directly out of your paycheck and sending it off to repay your creditors or collection agencies. Chances are, if you’re behind on your bills your finances are already strained. This process called wage garnishment or wage attachment can strain your finances even further. However, you still have rights and may be able to find a way to lessen or stop the garnishment.
Limitations on Wage Garnishment
There are federal limitations on which types of income can be garnished and how much money can be taken out.
Generally, the following can’t be touched:
• Social Security disability, retirement, and dependent/survivor benefits
• Supplemental security income (SSI)
• Temporary Assistance for Needy Families (TANF)
• General assistance
• SNAP (food stamps)
• Unemployment insurance benefits
• Veterans’ benefits
• Child support
Other types of federal aid may also be exempt and your state may have additional laws that protect certain forms of income. For garnishable income, the amount that can be taken can vary depending on the type of debt you owe. The limit will often be a percentage of your disposable income, which is the money you receive after taxes and other legally required deductions are withheld from your paycheck:
• Most consumer debt: The lesser of 25 percent or the difference between your disposable income and $217.51 (i.e., 30 times the federal minimum wage of $7.25 an hour. If the minimum wage changes, this will change as well).
• Child support or alimony: Up to 60 percent (or, 50 percent if you have another child or spouse). Your limit may increase by an additional 5 percent if you’re over 12 weeks late.
• Federal student loans: Up to 15 percent
• Back taxes: Up to 15 percent
Options If Your Wages Are Being Garnished
You may be able to keep your wages from being garnished or decrease how much is taken out in several ways. As a quick aside, before you start on your own, you could consult with an attorney who has a better understanding of the laws and consumer rights. One of the first steps you can take is to try and work with the creditor that wants to garnish your wages. You may be able to negotiate a smaller monthly payment than the amount that would be taken out of your paycheck. Or, you might be able to negotiate a debt settlement and completely wipe out the debt with a lump sum payment. You might be able to file a claim of exemption and stop or decrease the wage garnishment based on your personal and financial situation. For instance, many states offer a head of household exemption for debtors who have a dependent, such as a child or elderly parent that they financially support. You may be able to challenge the wage garnishment on different grounds, such as when more than the appropriate amount of money is being taken out of your paychecks or if the creditor didn’t follow the correct proceedings.
Also, review the documents that the courts or your employer send you to ensure that you actually owe the debt. If a creditor is trying to collect a debt that you don’t owe such as one you’ve already paid or that was discharged in bankruptcy that could be grounds for stopping the garnishment and clearing the debt. Debt consolidation or refinancing involves taking out a new loan to pay off your existing loans. It’s going to be difficult to qualify for a new loan if you’ve fallen so far behind on your bills that your wages are being garnished. However, it may be possible. You may be able to take out a secured loan, such as a home equity loan or home equity line of credit. This isn’t necessarily the best option, as you risk losing your home if you can’t repay the debt, but using the funds to pay off your creditors could stop the garnishment.
Free Initial Consultation with a Utah Bankruptcy Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506