One of the protections provided to debtors who file for bankruptcy is an automatic stay of most collection efforts, including wage garnishments. Filers may even be able to claw back some funds that were previously garnished.
As long as the bankruptcy stay is in effect, creditors covered by the bankruptcy cannot make any collection efforts that have not been approved by the court, this includes wage garnishments ordered before the debtor filed for bankruptcy.
While it may seem obvious, it is important to note that debts incurred after bankruptcy was filed are not covered by the bankruptcy action. So, a wage garnishment order for non-priority debt can be imposed while a debtor is going through the bankruptcy process. Garnishment orders for priority debt – most commonly child or spousal support obligations – can be imposed at any time and are typically not impacted by bankruptcy proceedings.
Although bankruptcy stays are automatic, they are not instantaneous. It can take time for creditors to be notified of the bankruptcy filing and put a stop to garnishments. If the filer wants to ensure that garnishments cease as quickly as possible, he or she can notify his or her payroll department to let them know they have filed for bankruptcy. Although employers often do not know whether their employees have filed for bankruptcy, if there is a wage garnishment order in place the employer will be notified that it is being terminated because the employee has filed for bankruptcy, so there is no harm in alerting them as soon as you have filed.
If the payroll department is not familiar with how wage garnishments are impacted by bankruptcy, or refuses to stop garnishing the filer’s wages without more formal notification, it may be useful to notify the local sheriff of the filing. Most wage garnishments are still handled by the local sheriff’s office, so they have the authority to immediately alter a garnishment order.
In addition to getting back funds withheld after bankruptcy was filed, filers can sometimes claw back wages that creditors had previously garnished. Wages garnished in the 90 days preceding the filing date may be recoverable. The amount garnished must exceed $600, and the filer must have enough exemptions to cover the funds. While attempting to pull all available funds into the bankruptcy may seem desirable, it can actually cost more in attorney’s fees to recover previously garnished wages than the wages are worth. The cost of recovery depends on the number and type of creditors involved.
Post-bankruptcy (or if the cases is dismissed or the court orders the stay lifted), the stay is lifted and creditors may again collect the debt they are owed via wage garnishment orders. Creditors may not attempt to collect debts that were discharged by the bankruptcy. Debts not discharged by the bankruptcy are subject to collection, including by wage garnishment, even if the garnishment order was previously stayed by the court.
If you have filed for bankruptcy and have a question regarding wage garnishments, an experienced bankruptcy attorney can assist you.