Filing bankruptcy protects your paycheck. It does so because federal bankruptcy prevents a state court wage garnishment order.
Last time we got into how hiring a lawyer can stop a creditor from suing you. Sometimes it can also stop a creditor which has already sued from getting a judgment against you.
But these work mostly for practical reasons, not legal ones. A creditor may not sue when you are about to file bankruptcy because it’s often a waste of time and effort to do so. It may hold off on taking a lawsuit to judgment when your lawyer is on the scene to oppose it. However, there is usually no legal reason stopping a creditor from proceeding.
So a creditor can, and sometimes will, sue you even if you’ve hired a bankruptcy lawyer. It can try to proceed with its lawsuit and get a judgment against you. One of the main reasons it would do so it that it wants to start garnishing your paycheck.
Filing bankruptcy virtually always prevents a garnishment from happening. That’s because your bankruptcy filing does make it illegal for your creditor to keep collecting the debt.
Bankruptcy Prevents Wage Garnishments
Filing either a Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts” imposes the “automatic stay” on your creditors. The “automatic stay” forbids further collection of almost all your debts. (Some rare exceptions are criminal fines and restitution, and most child and spousal support.) This stopping of debt collection goes into effect the moment you file bankruptcy.
In particular, the automatic stay stops “the commencement or continuation” of a lawsuit against you on a debt. Section 362(a)(1) of the U.S. Bankruptcy Code. That means that once you file bankruptcy, creditors can’t start a lawsuit against you. A lawsuit that a creditor already filed can’t continue.
Almost always creditors can’t garnish your paycheck until after first finishing and winning a lawsuit against you, getting a judgment in its favor, and then getting a wage garnishment court order for the purpose of collecting the judgment. So the bankruptcy prevents the lawsuit from turning into a judgment. And without a judgment the creditor can’t garnish your wages.
Bankruptcy Prevents Most Wage Garnishments Permanently
In preventing upcoming wage garnishments, bankruptcy does so permanently with the vast majority of debts. This happens when a debt is discharged (legally written off) in the bankruptcy case, as most debts are. Once a debt is discharged, an injunction is imposed against the collection of that debt ever again. That includes collection by any means, including garnishment. Section 524(a)(2) of the Bankruptcy Code. So the bankruptcy filing prevents wage garnishment on most debts, forever.
There are relatively rare situations when wage garnishment is only prevented temporarily. There are also some very limited situations when a wage garnishment is not prevented at all. We’ll get into these in the next couple blog posts.