When general creditors attempt to collect and fail, they can sue the debtor. If a court rules in favor of the creditor, the court may force your employer to withhold as much as 25% of your net monthly salary. This is a wage garnishment order. It is a devastating way to collect debt, but if the debtor has not paid what they owe over a duration of time, it may be the creditor’s only chance.
If you owe money to the Internal Revenue Service (IRS) or similar taxing authorities, they can acquire a higher percentage of your wages. They calculate the garnishment order amount based on your income and dependents. The IRS can even acquire your entire bonuses. Fortunately, you can cease wage garnishment by filing for bankruptcy.
How bankruptcy affects wage garnishment
Wage garnishment can make it difficult for an individual or family to continue to pay for monthly liabilities. If you are already struggling, removing a quarter or more of your only source of income can only worsen your situation.
When you file a bankruptcy petition, whether it be under Chapter 7 or Chapter 13, an automatic stay goes into effect. An automatic stay is an injunction that prevents general creditors from continuing most debt collection activities, including wage garnishment.
Filing for bankruptcy gives the debtor time to reorganize their finances and assets to see how they can continue to make monthly payments on the loans and debts they have accrued. You may even be able to settle your debt for less than the amount you owe.
Bankruptcy does not cease all wage garnishments
Although filing for bankruptcy can help lessen financial burdens, some forms of debt will not cease despite the automatic stay order. Debtors must continue to pay for student loans as well as federal, state and local taxes. Also, filing for a Chapter 7 bankruptcy will not cease wage garnishment for domestic support obligations.
You can always challenge the wage garnishment order in court, which may increase debt if not done correctly. If filing for bankruptcy is your only option, there are several ways to go about it that may be more fitting for your situation. Remember, filing for bankruptcy is meant to ease your financial burden.