23 Jun Does A Chapter 7 Bankruptcy Stop Wage Garnishment?
This is a common question we get in our office. The short answer is yes, a bankruptcy stops wage and bank garnishments. Once you file for bankruptcy protection the automatic stay goes into effect. This provision in the bankruptcy code stops all wage and bank garnishments for the duration of the bankruptcy case. Then once your bankruptcy discharge is granted the debt goes away and can no longer be collected upon.
The wage garnishment is one of the most effective tools that bill collectors use to collect debts in Minnesota. Once the creditor knows where you work they will take 25% of your paycheck until the debt is paid off. The other thing to keep in mind is once a creditor takes a judgement you will pay their court costs, attorney fees, and interest on the judgement. This means that the amount you pay back through the wage garnishment will typically be larger than the original debt. This amount can be many times the original debt or credit limit, by the time you look at fees and interest.
In my practice I have seen many consumers who have paid back all the money originally borrowed from creditors, but cannot pay back the court costs, fees and interest. This is especially true with credit card debt where the interest rate can exceed 20%. Most people want to pay back their creditors, but with interest and late fees not everyone is able to pay back. If you look at the interest you have paid on credit cards with 20% plus interest rates it is phenomenal, even a small credit card balance can have large payments with these rates.
It does not surprise me that many people struggle with even small credit card debt given the fees and interest on the account. Once you begin to struggle with the debt it does not take long for the collection calls and collection letters to start. The next step in the process is to send the account to a collection attorney to sue out on the account. Once the lawsuit starts most people do not answer the complaint and have a default judgement taken against them. After the default judgement is taken the creditor is then free to start garnishing your wages or bank account. In most cases once a creditor has a judgement they will not negotiate much off the balance of the judgement, since they have the judgement. If you want to remove a judgement in Minnesota if requires a couple of motions and is a very difficult process, since it requires the debtor to show many things to have the judgement overturned.
If you are having your wages or bank account garnished, you need to first determine if your money is exempt. The most common exemption is if the funds come from some governmental source like Social Security, Food Stamps, Welfare benefits or other governmental programs. The other exemption is creditors cannot take more than 25% of you wages per pay period, this is also true of paychecks deposited into bank accounts. The creditor still cannot take more than 25% of your paycheck in the bank. In order to prove the money is from wages, you will have to provide proof to the creditor showing the money is from a paycheck. Once you provide this proof you will give the creditor your employment information, and they will switch from a bank garnishment to a wage garnishment. This means they will take your money every paycheck until the debt is paid back.
If you are being garnished you may want to give our office a call to see what options you have. You may need to look at a bankruptcy or some other form of debt negotiation. Our job is to give you honest advice so you can make an informed decision about what is best for your life. In many cases people who have filed bankruptcy see their credit score increase after getting their discharge and are able qualify for good interest rates for houses and cars.