Can bankruptcy stop a wage garnishment?

How the stay works

The moment a bankruptcy case is filed, a federal rule called the automatic stay goes into effect. It is not something a judge has to grant. It exists the instant the case number is issued, and it prohibits most creditors from continuing any collection activity against you, including garnishment.

In practice, your attorney (or you, if filing without one) notifies your employer’s payroll department and the creditor’s lawyer that the case has been filed, with the case number. Most employers stop the deduction on the next payroll run. If a garnishment comes out of a paycheck after filing because the notice arrived late, that money generally has to be returned.

Which garnishments it does not stop

The stay has a few exceptions that matter here:

• Child support and alimony. Garnishments for domestic support continue during a bankruptcy. The debt cannot be discharged, either. Chapter 13 can help you catch up on past-due support through a plan, but current support keeps coming out of your check.
• Criminal fines and restitution. These are not stopped and not discharged.
• Repeat filings. If you had a bankruptcy case dismissed within the past year, the stay in a new case lasts only 30 days unless you ask the court to extend it. If you had two cases dismissed in the past year, there is no automatic stay at all without a court order.

The stay itself, everything it stops and everything it doesn’t, is covered in The automatic stay, explained.

Garnishments for federal taxes and student loans are stopped by the stay. Whether the underlying debt survives the bankruptcy is a separate question, and often the answer is that it does. The garnishment stops; the debt may not.

What happens to money already taken

Wages garnished before you filed are usually gone. There is one exception worth knowing: if a creditor took more than about $600 from you in the 90 days before filing, that transfer can sometimes be recovered. Whether that recovery goes back to you or to your other creditors depends on your exemptions and your state. Ask about this specifically if a large amount was taken shortly before filing.

Does the garnishment come back?

That depends on which chapter you file and what kind of debt it is.

In Chapter 7, if the debt behind the garnishment is a typical unsecured debt, such as a credit card, medical bill, or personal loan, it will be discharged at the end of the case, usually about four months after filing. The creditor cannot restart the garnishment, ever. If the debt is one that survives Chapter 7, such as most tax debt or student loans, the creditor can resume collection after the case closes.

In Chapter 13, the garnishment stays stopped for the life of the plan, typically three to five years, and the creditor is paid whatever the plan provides. At the end, the remaining balance on dischargeable debts is wiped out.

Timing

If you are being garnished now, timing matters more than usual. Every pay period before filing is money you will probably not get back. That said, filing in a rush without gathering the required documents, completing the pre-filing credit counseling course, and reviewing your whole situation can create bigger problems than one more garnished paycheck. A good attorney can often file an emergency “skeleton” petition within a day or two and complete the rest of the paperwork within two weeks; exactly how that works, including the counseling course you can knock out online today, is covered in How fast can I file if something is days away?.

Things that change the answer

• Whether the debt behind the garnishment is dischargeable.
• Whether you’ve had a case dismissed in the last year.
• Whether the garnishment is for support, taxes, or student loans.
• How much was taken in the 90 days before filing.