June 16, 2014 – A common cause for people to file for bankruptcy relief is garnishment. It is hard to have 25% of your net paycheck taken! This typically results in a snowball effect; short to pay for utilities, mortgage, rent, food, etc. Once this happens, people think that the funds are gone and there is nothing you can do. That is not correct!
How a wage garnishment works is that an order from a court is given to your employer requiring it to withhold 25% of your net paycheck. This will go on for a period of 60 days. At the end of the 60 days the creditor must then get an order directing the employer to turn the funds over. At that point, the creditor has the funds (quick side note, it does not always work this way but the end result is typically the same)
How bankruptcy helps is that it can stop the garnishment while it is pending. As an added bonus, it can even reverse a garnishment that has already been completed.
How it stops a bankruptcy is simple: The day you file for bankruptcy relief the creditor can no longer take any action to collect. That means it has to stop any pending garnishment. The funds held by your employer (or sometimes by the creditor) must be turned back over to you.
How it reverses a completed garnishment is a little more time sensitive. In bankruptcy, one is presumed insolvent the 90 days prior to filing for relief. Basically, this means that any payments to creditors during that time (whether voluntary or involuntary) is a preference and can be reversed. Garnishments are involuntary payments.
For a garnishment, if it is completed in that 90 day period it can be reversed. In other words, if the day the order is issued directing your employer to pay the funds to the creditor is in the 90 day period, it can be reversed. For example, one is garnished from November 1 to January 1. The creditor then gets an order on January 2 to turn over the funds. If the debtor files for bankruptcy relief by April 1 (within 90 days of January 2), the employer must give those funds back to the debtor.
There are other factors that may play a part of this. So, if you are facing a garnishment talk with an expert who can help you with understanding what you are facing.
For more information contact Brian Hanis, Bankruptcy Attorney, Hanis Irvine Prothero, PLLC.
FREE 30 minute bankruptcy consultation.