Can Bankruptcy Stop Creditors from Garnishing Wages?
From plummeting credit scores to harassment from bill collectors, there are many drawbacks to falling behind on debt payments. But perhaps none are as frustrating as wage garnishment.
If you are delinquent on debts, creditors and debt collectors may be able to get a court order demanding that your employer garnish wages from your paycheck and send the money to creditors. According to federal law, creditors have the right to seize up to 25 percent of earnings, exempting benefits like Social Security.
As you might imagine, a shrinking paycheck can spell serious trouble for those already struggling to make ends meet. But when you’re deep in debt, wage garnishment may come with a silver lining: For many folks, losing earnings to wage garnishment is the final straw that motivates them to file bankruptcy – and find the debt relief they need.
Filing for personal bankruptcy shouldn’t be taken lightly, of course. Your bankruptcy will appear on your credit report and impact your credit score – at least initially.
In the long run, however, bankruptcy may be the best decision you make for your finances – especially when your paycheck is in peril.
When a debtor files for bankruptcy, a legal action known as the automatic stay goes into effect, stopping debt collection activities – including wage garnishment. From this point forward, the bankruptcy court, and not creditors, will determine whether creditors are entitled to repayment.
If the unpaid debt leading to wage garnishment is eligible for elimination with bankruptcy – for instance, if it is an unsecured debt such as a medical debt or credit card debt – wage garnishment will be eliminated with bankruptcy as well.
For those able to file for Chapter 7 bankruptcy, debts – along with wage garnishment - can often be completely wiped out in just a few months. Chapter 13 can also put a stop to wage garnishment if the delinquent debt is included in the Chapter 13 repayment plan.
When you’re already living paycheck to paycheck, a significant wage cut is only going to make your financial situation worse. What you need is a solution that addresses the underlying cause of your money troubles – more often than not, overwhelming debt.
Bankruptcy has the power to eliminate the most common forms of debt, freeing up more money and making it possible to begin rebuilding credit – and your life. With the burden of debt behind you, the only spending your hard-earned dollars will be you.
To learn more about bankruptcy – and to determine whether a bankruptcy plan is right for you – contact the attorneys at DebtStoppers for your free one-on-one personal debt analysis.
What To Do If Your Wages Are Garnished, by Blake Ellis, CNN Money