Wage garnishment is a creditor's trump card, letting them legally siphon off as much as 25 percent of your earnings. In addition to immediately ending the garnishment, filing bankruptcy may also let you get back some of the money taken. Here's what's involved in the process.
The Automatic Stay Shuts Down Collection Action
Filing bankruptcy activates the automatic stay rule, which forces creditors to immediately discontinue all collection activities. If you're being sued in court for non-payment, the creditor would have to withdraw its case, for example.
With wage garnishment, payments to the creditor end as soon as the company and your employer receive notice that you've filed bankruptcy. Any money that hasn't yet been sent to the creditor will be returned to you.
Unfortunately, depending on mail times, it can take a while before everyone receives the memo. Thus, if you can't wait for the court to mail out official notices, you can send copies of your bankruptcy filing to creditors and your employer and that will stop the garnishment sooner.
It's important to note that any money the creditor receives after being notified about your bankruptcy should be sent back to you. However, some shady creditors will keep the funds anyway hoping you won't notice or say anything. The penalty for not complying with bankruptcy laws are stiff, so sending a polite letter (preferably from an attorney) detailing the "error" should be enough to get the company to refund the cash.
Adversarial Proceedings Can Prompt Partial Repayment
There is a chance you can also recover money taken prior to filing bankruptcy. The courts don't like it when creditors are paid in the months immediately before debtors file their petitions because it can create a situation where a creditor may get more money than they would actually receive via the bankruptcy case.
In this situation, the court may let you claw back those payments, i.e. force the creditor to return the money, but several requirements must be met first:
For instance, a creditor took $1,000 in wages from you in the two months prior to filing bankruptcy. You could use the federal wildcard exemption of $1,325 to reclaim that money.
Usually, the bankruptcy trustee handles clawbacks, but you can initiate one by filing an adversarial proceeding against the creditor. A bankruptcy attorney can help you with this, so it's best to consult with one as soon as you're able.
For more information about filing bankruptcy, contact a local bankruptcy attorney service.Share
16 September 2020
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