Wage garnishment on unsecured debts can be stopped by bankruptcy filing
Wage garnishment is allowed on long-term debt only by court order, but in most cases, it can be stopped once an individual files for bankrupty.
Wage garnishment is allowed on long-term debt only by court order, but in most cases, it can be stopped once an individual files for bankrupty.
However, there are exceptions, such as child support or alimony and tax payments. But when a creditor has started to garnish a person's wages - generally for unsecured debt, such as credit card or medical bills – they cannot continue once a bankruptcy action has been filed on debts that existed at the beginning of their case.
That's because filing a bankruptcy petition automatically "stays," or stops collection efforts and lawsuits filed to collect a debt, according to the U.S. Bankruptcy Court.
To fully understand how wage garnishment comes into play, it helps for consumers to know how wages can be garnished in the first place. Usually it occurs when a debt has been owed for a significant amount of time, because wage garnishment cannot take place until a number of stages have passed.
"Typically a garnishment order comes at the end of a long debt collection process," according to the "Credit Guy" Todd Ossenfort, a debt expert who writes for CreditCards.com. "First, the debt is charged off by the original creditor, usually after the account has not been paid for more than 180 days. Next, the account is sold or moved to a collector."
If the collector files a lawsuit and the debtor doesn't show up for the court hearing, or doesn't convince the court why garnishment shouldn't take place, a judgement will be made in favor of the collector. Afterward, an order may be issued allowing the collector to get the debt paid through an individual's place of employment – by garnishing, or removing a certain amount of money from each paycheck.
However, even when wage garnishment has begun, it can be halted immediately by the automatic stay that comes with the filing of a bankruptcy petition. If the court discharges the debts covered by the bankruptcy, that decision forever eliminates a creditor's right to garnish a person's wages to pay back that debt.
There are even instances in which a creditor who has collected part of an unsecured debt by garnishing wages may be responsible for paying back some of the money to the debtor. If the creditor has garnished more than $600 in the 90 days prior to the bankruptcy filing, the debtor may be able to get that money back as part of the bankruptcy.
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