People who were once reluctant about bankruptcy often change their minds once a wage garnishment starts. Embarrassment is often the first emotion, especially since employers will call you in to discuss it in more detail. After that, you experience its effects on your income and your ability to make ends meet, often making a desperate situation even worse. You likely already struggle at your current income level, now, you have even less to work with while home payments and utilities still remain due.
At Bond & Botes, we handle many bankruptcy cases that came about due to the impacts of wage garnishment. Rather than give you lectures on budgeting, we offer personal attention so your bankruptcy filing happens efficiently and effectively. A bankruptcy filing stops wage garnishment in its tracks and gives you control over your financial life once again. It is often the best option for people in need.
Laws & Limits Concerning Wage Garnishment
Wage garnishment occurs after a creditor enters a judgment. In order to do this, first they must file a lawsuit, serve you with a summons, and, assuming you do not answer it, file for a default judgment. That makes it possible for creditors to collect on that judgment through wage garnishment. This is not a process that happens in a vacuum or on a random whim. Many collection calls contain threats that make consumers feel they are vulnerable immediately. Making those statements is illegal and can expose creditors to liability.
Wage Garnishment for Tax Debt
For tax debt, you will receive a notice of lien before there is a garnishment. This works the same way as a judgment but without a court process. State agencies can work to collect debt much more quickly than private entities, which exposes you to the impacts quicker.
Garnishment starts when the creditor or government agency sends your employer a notice to withhold a certain amount of your paycheck and send it to them. This amount varies by the type of debt and fortunately, there are limits.
Alabama limits the amount garnished to 25 percent of disposable earnings, which is consistent with federal law. For child support obligations, this increases up to 60 percent. Mississippi has the same limits and Tennessee allows additional options, including the slow pay filing.
While the limits and options can make this situation a little more bearable, the problem is that people facing wage garnishment are already struggling. Losing 25 percent of disposable income may not have a big impact for people with higher incomes but for those suffering a recent job loss and reduced wages, there is a tremendous impact on paying rent, utilities, and keeping food on the table. For clients in that situation, bankruptcy is frequently the most effective course of action.
How Bankruptcy Can Stop Wage Garnishment
Filing bankruptcy immediately institutes an automatic stay. Once instituted, creditors cannot contact you about the debt and must put their collection efforts on hold. This includes garnishing paychecks. Any funds garnished after the bankruptcy filing date must be returned. Doing otherwise is a violation of federal law.
This works even with nondischargeable debts like student loans and tax debt. Even these priority debts cannot get past the automatic stay as it affects collection efforts, not whether the debt is discharged. However, be aware that if you have a wage order for child support obligations that will likely continue unless you work out another arrangement. Child support is in a special category, but if you are facing that withdrawal along with other wage garnishments, you will still receive needed relief.
You will receive the benefits of the automatic stay whether you file a Chapter 7 or Chapter 13 bankruptcy. Besides giving you needed relief from debt, bankruptcy also takes control away from the creditors and puts it with the court. This gives you time to regroup and regain control of your finances.
If you are ready to shed the fear of wage garnishment and experience relief from your debt, contact Bond & Botes today. We have offices in Alabama, Mississippi, and Tennessee with many convenient office locations. Ask for a free initial consultation and enjoy your full paycheck once again.