Protection from Garnishment through Chapter 7
As tempting as it is to start the title of this post with the word bankruptcy, this is a four letter word to many people. The word evokes a bitter loss in the board game Monopoly and has a host of negative connotations. The main way to rise above these associations is to call it what it is: bankruptcy protection, or protection from creditors. Nobody wants to have to file a bankruptcy, but sometimes this is the only way to keep the lights on, every once in a while literally when the utility company has shut off the electricity.
The classic example is the following: Client is a hardworking person who makes just enough to survive. Then, with little warning, Client’s paycheck is reduced by 25% one day for the same amount of work. What happened?? A closer look reveals a new after tax deduction labeled “Garnishment.” A garnishment is a remedy available to a creditor who has a civil judgment against the Client debtor. It means that the creditor, if they know where the debtor works, can simply serve a garnishment and start receiving 25% of that person’s paycheck until the debt is paid. I don’t know about you, but 25% of my income being gone all of a sudden would hurt, and bad. As can sometimes be even worse, a garnishment can also be used to take funds in the bank. That $1,000 cushion in the checking account that was earmarked for rent and utilities could literally be gone in the blink of an eye.
In either of these examples of a garnishment, it is easy to see how this could be the first domino to fall, and the second or third domino could be the loss of a home, utility, or car when a payment cannot be made. Sometimes, debtors change employers or financial institutions to try to stay ahead of garnishment, which is also disruptive and only a temporary solution. Or maybe the garnishment will instead result in a high interest credit card or payday loan being the next in a series of dominoes. Regardless, it is easy to see how losing that 25% of the paycheck or entire bank balance could make things harder for the struggling worker.
Rather than try to soldier on through the garnishment and lose much in the process, there may be a better way. Filing a Chapter 7 bankruptcy petition puts a stop on all creditor actions including garnishment. You don’t have to argue for this special relief, the garnishments simply stop during the bankruptcy proceeding. Then, after the bankruptcy is completed successfully, the “automatic stay” against creditor actions stops, but the discharge is then in place, which continues to halt the garnishments in perpetuity, because the underlying debt has been discharged, or simply deleted from your balance sheet.
Many times, the clients that I help in bankruptcy have had the underlying debt for a long time. They may have been able to pay some of the debt or at least make minimum payments without making real headway after high interest rates. Although the amount of debt certainly justified an economical bankruptcy, sometimes they soldier on because they do not want to file bankruptcy or have no urgency to do so. That all changes when the garnishment comes in. When I have a client who is being garnished, I start the process as quickly as possible so we can get that garnishment stopped. I have even filed bankruptcies a few short days after the initial meeting with the client.
There are numerous moving parts to any bankruptcy. The above refers to the classic example of a private creditor garnishing a debtor in Kansas. This should not be construed as specific legal advice. Instead this post is intended to help inform people that they have options to try to stop being garnished. Bottom line, if you find yourself in a situation where your paycheck or bank account has been garnished, don’t wait. Pick up the phone and call me to see if filing a Chapter 7 can stop the garnishment and help you stay on your feet.