Does Bankruptcy Stop Wage Garnishment?

Filing for bankruptcy is a significant decision that carries profound implications for your financial future. Among the myriad questions that individuals grappling with overwhelming debt may ask is whether initiating bankruptcy proceedings can halt wage garnishment. The answer, while nuanced, offers a ray of hope for those seeking relief from the relentless pressure of debt collection. In this post, Whitten & Whitten explains the impact bankruptcy may have on wage garnishment and offers insights to help you make an informed decision.

Understanding Wage Garnishment

Wage garnishment is a legal process that enables creditors to collect money directly from an individual’s paycheck to satisfy a debt. If you owe money, your employer may be legally required to withhold some of your wages and send it directly to your creditor. This process doesn’t end until the debt is paid off or a court orders it to stop.

In the United States, 1 in every 100 workers suffer from wage garnishment. This alarming number highlights a great need for individuals to understand their rights and options when facing aggressive debt collection tactics.

The Automatic Stay

As a rule, yes, bankruptcy can stop wage garnishment. When you file for bankruptcy, an automatic stay is implemented. This stay is an immediate injunction against all collection efforts, including wage garnishment. Once you file for bankruptcy, the automatic stay goes into effect regardless of whether your creditors are aware of it or not. This means that even if your employer has already begun withholding wages to satisfy a debt, they must stop as soon as the bankruptcy is filed.

Exceptions to the Automatic Stay

While the automatic stay provides temporary relief from wage garnishment, some exceptions should be noted. Certain types of debts, such as child support or tax obligations, may be exempt from the stay and continue to be collected. Additionally, if you have had a previous bankruptcy case dismissed within the last year, the automatic stay may not go into effect.

Chapter 7 vs. Chapter 13 Bankruptcy

When addressing the issue of halting wage garnishment, the specific form of bankruptcy filed plays a crucial role in the outcome. Filing for Chapter 7 bankruptcy, commonly called liquidation bankruptcy, can offer a temporary reprieve from wage garnishment. However, it’s important to note that this bankruptcy doesn’t completely wipe out the underlying debt. Instead, it might liquidate non-exempt assets to pay off creditors, which may or may not cover the total amount owed, leaving some debts partially unresolved.

Conversely, Chapter 13 bankruptcy, known as restructuring bankruptcy, presents a different approach. It allows individuals to propose a repayment plan to the court, detailing how they intend to pay off their debts over three to five years. This plan, once approved, can significantly reduce the monthly payments and, in some cases, lead to the discharge of a portion of the debts. This type of bankruptcy is particularly beneficial for those seeking to retain their assets and manage their debt in a more controlled and structured manner. Through this process, wage garnishment can be stopped, giving the debtor a chance to regain financial stability without the immediate pressure of debt collection efforts.

Seeking Legal Advice

Ultimately, while filing for bankruptcy may not automatically eliminate all forms of debt, it can be a powerful tool to halt wage garnishment and give people a chance to regain control over their finances. If you’re struggling with overwhelming debt and facing wage garnishment, seeking legal advice is crucial in making an informed decision about your financial future. The team at Whitten & Whitten is dedicated to providing compassionate and knowledgeable guidance to help individuals navigate bankruptcy and achieve a fresh start. Contact us today to schedule a consultation and learn more about how we can help you on your journey towards financial stability.