Can Bankruptcy Stop Wage Garnishment?

Key takeaways

• Wage garnishment may be stopped if your bankruptcy case is successful, but it’s not a guarantee because some types of debt are exempt from being discharged that way.
• Regardless, when you file for bankruptcy, there is typically an automatic stay placed on wage garnishment, giving you at least temporary relief.
• There are limits to how much a creditor can take via wage garnishment (the federal cap is 25%, though some states have a lower limit).
• Some people may be able to either contest the wage garnishment or show that they are exempt to stop it or reduce the amount.

When it comes to being in debt, one of the biggest insults to injury is wage garnishment. It doesn’t give you the opportunity to put that money toward helping yourself get out of debt, and it can make getting out of debt harder. You may think that bankruptcy is your best bet to make it stop. And while it may help in some circumstances, that isn’t always the case.

Here’s what you need to know.

When bankruptcy can stop wage garnishment

Bankruptcy is a legal process that lets people pay off their debts or access debt forgiveness. In cases where the debt is discharged, it can also result in stopping the wage garnishment that’s associated with that debt. That would only be available when filing for Chapter 7 bankruptcy.

When filing for Chapter 13 bankruptcy, you can still stop your wages from being garnished via your employer. But instead of having those debts discharged, you must agree to a repayment plan. So you’d make the payments out of your own bank account instead of with wage garnishments.

But there’s another feature of filing for bankruptcy that can also help stop (at least temporarily) wage garnishment: automatic stays.

Automatic stay: What to know

In most cases, when you file for bankruptcy, there would be a court order to stop wage garnishment, which is known as an automatic stay. That would last at least until your bankruptcy case is concluded and is often a part of both Chapter 7 and Chapter 13 proceedings.

The automatic stay gives you time to breathe while you work with your bankruptcy attorney to make your case. The very act of filing can be extremely helpful while you sort out your finances, though it’s not the point of going through the process.

Keep in mind, though, that automatic stays don’t impact child support or alimony payments.

When bankruptcy won’t stop wage garnishment

There are several circumstances in bankruptcy cases where wage garnishment won’t stop, and these often depend on the type of debt you have. For example, child support is considered a nondischargeable debt. So it’s excluded from any stays to collection activities and isn’t affected by a successful bankruptcy case.

Other types of nondischargeable debt — in other words, the type of debt that you can’t stop wage garnishment for — include:

• Mortgage debt
• Alimony
• Certain taxes
• Government-funded student loans
• Debts resulting from death or personal injury caused by a DUI or DWI

When it comes to other types of debt that are typically halted during an automatic stay — also known as dischargeable debt — you still may not be in the clear. Your creditor can make a case to the bankruptcy court that there’s good cause to continue wage garnishment for dischargeable debt, which may or may not be successful.

It’s also possible that some of your debt isn’t discharged once your bankruptcy case concludes. In that case, because the automatic stay ends at the conclusion of a case, the creditor would be able to resume wage garnishment for any undischarged debt.

What are your legal rights during wage garnishment?

Wage garnishment can make you feel powerless, but that doesn’t mean you’re immune from fair debt collection practices. And there are rules surrounding this topic that are designed to ensure those who endure it aren’t completely taken out by it. Plus, you are required to complete a government-approved credit counseling course in order to file for bankruptcy, which will help you understand your rights.

In the meantime, here’s a quick guide to your legal rights during wage garnishment:

• If your wages are being garnished for a single debt, your employer cannot use that as a reason to fire you.
• If you’ve filed for bankruptcy, your creditors or collections agencies cannot contact you about that debt while an automatic stay is in effect.
• Title III of the Consumer Credit Protection Act (CCPA) limits how much of your wages can be collected this way, with a cap of the lesser or either 25% of your disposable income or the amount by which your disposable earnings are greater than 30 times the federal minimum wage.
• But the limit may be lower depending on where you live, as some states place their own limitations. So you’d need to look up your state limits to know your full rights here.
• You may be able to recover wages that were garnished within 90 days before filing for bankruptcy, assuming it meets the minimum amount (which changes periodically, so you’ll have to check when you file to be sure.)

Keep in mind that when it comes to wage garnishment, your disposable income is defined as the amount of earnings left after legally required deductions are made — not the amount that you’d consider to be “disposable” income, which likely excludes things like rent and utilities.

Other ways to stop wage garnishment

Bankruptcy can help stop wage garnishment, but it isn’t the only option. Here are three alternatives to consider:

Pay off the debt or settle

If your wages are being garnished, you may not be in a position to pay off that debt — but if you’re among the few who can, that’s going to be the best way to both stop wage garnishment and preserve and improve your credit.

Otherwise, settling the debt with your creditor is a solid option here. That would require you and your creditor to agree to either a lower debt amount or create a repayment plan for the full amount. There are debt settlement companies that claim to do this for you, but be cautious about using those as they often charge expensive fees.

Challenge the wage garnishment order

Just because a creditor can garnish your wages doesn’t mean that they’re necessarily entitled to the full amount that they’re granted. You can challenge the wage garnishment order. In fact, the paperwork you get from the courts notifying you about the wage garnishment order should include your deadline to file an objection and how to do so.

Once you file, the court may schedule a time to hear your objection and rule on it. You’ll need to provide reasonable grounds for your objection, such as evidence showing that you already repaid that debt.

File an exemption

You may be exempt from wage garnishment if you meet certain criteria. The exemptions may vary based on location, so you should talk to an attorney about your state’s requirements to understand if this is something you should pursue.

A hearing may be scheduled so that the judge overseeing your case can rule on whether or not you qualify for an exemption, depending on the state you live in. If you qualify, the judge may order that your wage garnishment be reduced or stopped altogether.