Yes, bankruptcy can stop wage garnishment. This article will discuss what wage garnishment looks like, how bankruptcy can stop it and what other options are available to you to protect your paycheck.
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What is Wage Garnishment?
Wage garnishment is when a court orders your employer to pay a specified amount from your paychecks to your creditor. This can be used to collect many types of debt including:
- Credit card debt
- Medical bills
- Alimony and child support
- Student loans
Your creditor must sue you for the debt. A court hearing must be held before a judge can order wage garnishment. The creditor must inform you of the hearing so that you have the opportunity to challenge the garnishment. Unpaid student loans, taxes, and child support are all exempt from the requirement for a court hearing.
For those who depend on their paychecks for survival, wage garnishment can worsen a poor financial situation. There are many ways to stop wage garnishment. You can lower the amount garnished or you can avoid it altogether.
Wage garnishment is generally stopped by bankruptcy
People facing wage garnishment or other serious debt problems may consider filing for bankruptcy to regain control over their finances. Filing bankruptcy will stop most wage garnishment and prevent creditors from requesting new garnishment orders against your.
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An “automatic stay”, an injunction that is automatically placed when you file bankruptcy, is created. This automatic stay is based on the U.S. Bankruptcy code and stops creditors, collections agencies and some government entities pursuing you for debts while your bankruptcy case progresses.
The automatic stay serves one purpose: to allow you some breathing space while the trustee who is overseeing your case reviews your bankruptcy petition, assets, income, and debts.
When does the Automatic Stay begin?
No matter what type of bankruptcy you file, the automatic stay will be activated. It applies to both individuals and businesses.
Creditors must stop garnishing your wages or any other collection activity as soon the bankruptcy is filed. This can be done by notifying the bankruptcy court, or your lawyer. They can be charged with contempt for failing to stop collection actions if they don’t.
Because they are non-dischargeable and high priority, certain types of debt may still be garnished under the automatic stay.
Chapter 13 bankruptcy has a special automatic stay provision. This protects codebtors (e.g. co-signers for loans) from collection attempts.
If creditors can prove good cause (a reason) for wage garnishment, they have the right to ask the court to permit it to continue. Creditors with unsecured debt usually cannot prove that they are able to do so.
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How long does the automatic last?
The automatic stay will remain in effect until your bankruptcy case is discharged or dismissed. The creditor can no longer garnish your wages if the debt was discharged under Chapter 7. Wage garnishment can be continued if you don’t get the debt discharged.
Chapter 13 bankruptcy should include the debt in your repayment plan. Unless you settle, garnishment for student loan debt may continue.
How to Avoid Wage Garnishment
Avoiding wage garnishment by avoiding default on your payments and staying in touch with your creditors is the best way to do so. You can still contact your creditor to try and find a solution, even if you are unable to make the payments.
If your creditor has sued you and obtained a garnishment order against yourself, they will likely send you another “demand letter” asking for payment before garnishment begins. You should respond to the letter and make voluntary payments. Creditors don’t enjoy the hassle and expense of garnishing wages, so they will often work with you.
Are there any legal requirements to file for bankruptcy?
You may wonder if bankruptcy might be a viable option if wage garnishment is causing financial stress. An attorney can help you make an informed decision about whether or not to file bankruptcy.
Bankruptcy may allow people to start over and have a fresh start. It can also have a negative effect on your credit score and many people are not eligible.
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Although you don’t have to hire a lawyer to file bankruptcy, it is highly recommended. However, bankruptcy is a complicated legal process with many requirements. A bankruptcy attorney can help you determine which type of bankruptcy is best for you and which debts are dischargeable.