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Resolving Wage Garnishment with Bankruptcy

If you are the losing defendant in a lawsuit where damages are awarded to the prevailing party who now becomes the judgment creditor, some of your assets may be subject to seizure by that party to satisfy the judgment. One commonly used collection method is wage garnishment.

Wage garnishment begins when the judgment creditor, armed with the court judgment, sends a copy of the order to your employer who, pursuant to law, must withhold a certain percentage of your paycheck. In California, the creditor can garnish the lesser of 25% of your disposable earnings (wages left after deductions made by your employer) or 40 times the state hourly minimum wage, which is currently $9.00 per hour and is slated to increase to $10.00 per hour on January 1, 2016.

For example, let’s say you make $1,000 per week and your disposable earnings after deductions are $700. You then multiply that by 25% to arrive at $175. Compare that to $360, which you obtain by multiplying the current minimum wage of $9.00 by the factor of 40. Since $175 is the lesser amount of the two options, this amount can be garnished from your weekly check.

But if you are earning the minimum wage of $9.00 per hour at 40 hours per week, or $360, then 40 times $9.00 is the same amount. If your disposable income is $320, then 25% of that is $80.00. In California, the creditor can only garnish the lesser of $80.00 or $0 because $320 – ($40.00 x $9.00 or $360) equals a negative number or -$40. In this case, the creditor cannot garnish your wages.

If this latter scenario is not your situation, then you can fight the garnishment by either filing an exemption with the court where the judgment was issued, or filing for bankruptcy.

Filing an Exemption Claim

You can request that the garnishment not proceed if you can demonstrate that the amount subject to garnishment is absolutely essential to the support of your family. You can file a Claims Exemption form accompanied by a financial statement with the court. If granted, the court can either exempt the total amount being garnished or reduce it.

Bankruptcy

In many cases, however, judgment debtors are making enough to have their wages garnished. This is not only embarrassing but it can seriously affect your ability to pay your bills if you are living paycheck to paycheck. You can, however, stop wage garnishment in bankruptcy.

When you file for bankruptcy under either Chapter 13 or 7, an automatic stay under 11 USC Section 362 of the Bankruptcy Code goes into immediate effect, stopping all collection activities including wage garnishments. The automatic stay can only be lifted in certain situations such as in a foreclosure proceeding. Most creditors, though, such as credit card companies, will not be able to get relief from the stay. There are exceptions for certain claimants who can also garnish your wages without a court judgment provided adequate notice is given to you. These include obligations such as:

  • Unpaid child support
  • Unpaid taxes
  • Student loans

If the creditor is other than the government attempting to collect these particular obligations, then bankruptcy will not only stop the garnishment, it may discharge the debt, if unsecured, and you may be able to recoup wages that were garnished before you filed. Wages garnished 90 days before filing and in the amount of at least $600 may have to be returned to you provided you have enough exemptions to cover this amount. For example, in California if you are not a homeowner, then you do not use your homestead exemption, allowing you to use the wildcard exemption of $1,280 plus $24,060 pursuant to Set 1 of the California exemptions to recover the garnished amount.

Wage garnishment in bankruptcy may not totally halt the process, however, if you had previously filed for bankruptcy in the past 12-months and it was dismissed before discharge. If this is your case, then the automatic stay is good for only 30 days after which the creditor may resume the garnishment absent a requested extension for you to seek other options such as negotiating a settlement or perhaps filing a Claim for Exemption.

In any case, promptly consult with a bankruptcy attorney if you have a judgment against you or if garnishment proceedings are pending or are currently taking funds from your paycheck.

 

 

Dheeraj K. Singhal
About the Author
I help people keep the things they want and get rid of the things they don't want. I have been a lawyer for over 12 years and there are few things I enjoy more then getting great results for the people that trust me with their legal problems.