Importance of Automatic
Stay in stopping
Wage Garnishment

Working of Wage Garnishments

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Importance of Automatic Stay in stopping Wage Garnishment

Working of Wage Garnishments

One of the most significant consequences of owing a debt and not being able to repay it is wage garnishment. It is an order of the bankruptcy court which directs your employer to deduct money from your paycheck and give it to the creditor. This may lead to more serious financial problems and may force the debtor to file for bankruptcy. However, filing a bankruptcy will bring the automatic stay into effect which will stop most wage garnishments. It will also forbid the creditors from looking for new garnishments until the bankruptcy case is over.

Some types of debts elicit automatic garnishments. These debts include child support, tax debts, student loans, etc. In case of these debts, the creditor should necessarily file and also win a case against you. This will provide him or her with the court order, using which they may seek a wage garnishment.

Benefit of Automatic Stay in Wage Garnishment

Different debts have different legal limits of wage garnishments. For court judgments, 25% of the debtor’s disposable income is the maximum legal limit (federal limit). However, it may be low in some states. For student loan debts, up to 15% of wage garnishment is allowed. For tax debts and child support, the percentage of wage garnishment may be higher.

However, the automatic stay may give you some respite from this financial crisis by immediately stopping all the debt collection practices, including wage garnishment. It will also give the bankruptcy court the power over the debtor’s financial affairs. This will enable the court to decide the fate of all of the debtor’s properties. The court will decide the property which the debtor can keep, the property that has to be given up, and the property which is entitled to repayment to the creditor.

Effect of different Debts on Wage Garnishment

Certain debts like court judgments, medical bills, and credit card bills are dischargeable or can potentially be wiped out in a bankruptcy, and wage garnishment in case of such debts can be permanently stopped by filing a bankruptcy. For these debts, the automatic stay will cease wage garnishments, and once these debts are wiped out in a bankruptcy, the problem will be solved once and for all. In Chapter 7 bankruptcy, the debtor can get them discharged, while in Chapter 13 they can be included in the repayment plan.

However, all the debts may not get discharged. For certain debts, like tax debts, filing bankruptcy will provide only temporary relief from wage garnishment and other collection practices. At the end of your bankruptcy case, you will still owe the debts, and the automatic stay won’t be effective anymore. Your wage garnishment will not be affected in case of child support. This obligation does not even wipe out in a bankruptcy, thereby, leaving the wage garnishment unaffected. However, because of the discharge of other types of debts, you will probably be left with more money to repay the surviving debts.

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