Stopping Wage Garnishment Through Bankruptcy: Make Sure To Get The Timing Right

06 Dec Stopping Wage Garnishment Through Bankruptcy: Make Sure To Get The Timing Right

When a creditor obtains a court judgment against a debtor, wage garnishmentcan be soon to follow. Most persons subjected to wage garnishment will consult a lawyer to see ifit can be stopped, and many of those will file either chapter 7 or chapter 13 bankruptcy to stop the wage garnishment. While stopping a garnishment through an immediate bankruptcy filing is often a good idea, care must be taken to avoid filing bankruptcy too soon.

This might sound a bit strange — after all, if one’s wages are being garnished, and if filing bankruptcy will put an end to this hemorrhage of dollars into the creditor’s pocket, shouldn’t the bankruptcy lawyer be asked to sprint to the courthouse with the bankruptcy petition? Wouldn’t a speedy bankruptcy filing bring the paycheck right back to where it should be? Yes, but often there more to this question than meets the eye.

Section 522(h) and section 547 of the bankruptcy law allows a debtor to recover money involuntarily taken from him or her in the ninety days preceding the bankruptcy filing. These sectionsapply to wage garnishment, and they are often used to recover money garnished before a bankruptcy filing. Of course, this results in a happy bankruptcy debtor, who has just discovered that he or she actually made money, in a sense, by filing bankruptcy and the recovering the garnished funds.

However, there is a catch: section 522(h) and section 547 can only be used in this way if$600.00 or more was garnished before the bankruptcy filing. To put it another way, if $600.00 or more was garnished before the bankruptcy was filed, then all the funds can be recovered by the debtor; if less than $600.00 was garnished before the bankruptcy was filed, then the creditor gets to keep the money.

As you can now see, this is where the bankruptcy debtor needs to get the timing right. It might be a mistake to file thebankruptcy right now if, for example, $550.00 has been garnished from the paycheck, because then the debtor will be unable to the money back. Often, in this example, if the debtor can stand to wait until one more paycheck is garnished, then the total garnished before bankruptcy can be manipulated legally into a figure exceeding $600.00. This will often allow the debtor to recover every penny of the garnished funds.

The possibility of recovering garnished funds will mean that a decision has to be reached between the debtor and the bankruptcy lawyer regarding exactly when to file the bankruptcy case. Filing the case too soon would be a shame, if less than $600.00 has been garnished and if waiting a short time would enable the debtor to recover the money.

Furthermore, the strategy discussed here makes sense only if the debtor can claim the recovered funds as exempt in the bankruptcy. If no exemptions are available to allow the debtor to retain the funds, then waiting to file the bankruptcy is probably a bad idea and will result only in further suffering for the debtor. And, of course, if more than $600.00 has already been garnished, then waiting to file bankruptcy will not help the debtor either.

The point is simply this: discuss the timing of the bankruptcy filing with your lawyer to avoid filing the case too soon to meet the $600.00 threshhold, and avoid missing the chance to recover the wage garnishment.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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