Almost all paycheck garnishment is illegal from the moment your bankruptcy case is filed. Here’s what to do in the rare event it happens.
Pre-Bankruptcy and Post-Bankruptcy Garnished Money
Our last blog post was about what happens when a garnishment happens during the 90 days before you file bankruptcy. Today we talk about garnishments that happen immediately after filing.
Can Your Paycheck Be Garnished After You File Bankruptcy?
Almost never. Virtually all paycheck garnishments are stopped by the “automatic stay,” the federal law preventing the continued collection of debts after you file bankruptcy. The automatic stay goes into effect immediately upon the filing of your case. It is “automatic” in that it doesn’t require getting a court order or a hearing, but rather is made effective by the very act of filing your bankruptcy petition.
Even Special Garnishments Must Stop
If your wages are being garnished by the IRS on a tax levy, or by Sallie Mae on a student loan, or by someone who sued you and got a judgment against you for defrauding them, even these kinds of garnishments are immediately stopped by a bankruptcy filing.
Depending on the nature of the debt, the kind of bankruptcy you file, and other circumstances, these garnishments may possibly start back up later. The creditor may ask for permission from the bankruptcy court to do be able to do so. Or if the debt is the kind that survives bankruptcy, the garnishment may continue after the bankruptcy case is over and the automatic stay expires. Nevertheless, these kinds of garnishments are all stopped at least temporarily by a bankruptcy filing.
The Exceptional Garnishment That Does Continue Without Stopping
However, garnishments and withdrawals from your paycheck for ongoing child or spousal support are different. Those would continue (or can begin) regardless of your bankruptcy filing. That’s true whether that payment is one you set up as a voluntary payment or your paycheck is involuntarily being garnished. And it’s true whether you file a “straight bankruptcy” Chapter 7 case or an “adjustment of debts” Chapter 13 one.
In addition, a garnishment not for ongoing monthly support but rather for previously unpaid back support also continues regardless of a Chapter 7 filing. However, this kind of garnishment IS stopped by a Chapter 13 filing (and cannot be resumed as long as you meet some conditions).
The Exceptional Garnishments That Can Resume After a Delay
In very limited circumstances a creditor can ask for and get permission from the bankruptcy court to resume a wage garnishment after it was initially stopped by the bankruptcy filing. Or, in the case of debts that are not going to be discharged—legally written off—during the course of the bankruptcy case, the garnishment can be resume after the case is over and the automatic stay has expired. See the blog post before the last one for examples of this situation.
What If Your Paycheck Is Illegally Garnished?
If none of the above exceptions apply, you’ve filed bankruptcy, and your wages are garnished shortly after, what then?
It’s helpful to note that such violations of the automatic stay are rare. The main reason is the law can slap a creditor with significant monetary penalties if it starts or continues to garnish after a bankruptcy filing. As stated in the Bankruptcy Code section on the automatic stay:
an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
See Section 362(k).
The “costs and attorney fees” referred to there is of great practical importance. First, this gives a debtor suffering an illegal garnishment more incentive and ability to go after the creditor. Second, creditors have the incentive to be more careful because they know they are more likely to be challenged for illegally garnishing, and will pay more when they are.
“Punitive damages” are assessed by the bankruptcy judge as a penalty for illegal behavior, specifically designed to punish the creditor and teach it a lesson.
So most sensible creditors do not violate the automatic stay by starting or continuing a garnishment after you file bankruptcy.
If they DO still garnish after being informed about your bankruptcy case, talk with your attorney about filing (or threatening to file) a motion in bankruptcy court to make the creditor pay for its illegal behavior.