A wage garnishment is immediately stopped upon the filing of a bankruptcy because of the automatic stay, so that's one of the advantages of filing bankruptcy. Both a Chapter 7 or a Chapter 13 will stop a wage garnishment. Then it gives you time, time to reorganize, to repay that debt. Perhaps the debt will be discharged in a bankruptcy. Either way, hopefully the garnishment will stop and never restarted after the bankruptcy.
Wage garnishments might seem like an extreme measure. Under a court order, a creditor can contact your employer and skim money that you earned before it gets to you. And once garnishment starts, it is difficult to stop. Filing bankruptcy is one effective means of halting wage garnishments. Either a Chapter 7 or a Chapter 13 will stop a wage garnishment immediately for most debts. But it is important to know how bankruptcy will affect the garnished debt.
Some common types of wage garnishments include alimony, child support, income tax and student loans. Each type is governed by different rules and will be affected differently in a bankruptcy. Alimony and child support, for instance, can take up to 50% of your wages (or more in some cases). You may need to file a modification request with the family law court rather than the bankruptcy court to change that.
As a rule, federal income tax and federal student loans can garnish 15% from your disposable income. When they say disposable income, they mean all the money you make that does not go to deductions that the law requires. This calculation does not include your rent, mortgage, power bill, car, etc. It only includes things like Social Security and Medicare taxes.
If the garnished debt is federal income tax or student loans, the chances are slim that these debts will be discharged in bankruptcy. It is possible the garnishments will continue when the bankruptcy ends after the automatic stay is lifted. This is true for alimony and child support debt as well. Unless you catch up on the debt during the bankruptcy process or create some repayment plan as part of the bankruptcy, the wages will remain attached to the debt and the garnishments will resume.
Creditors in the more consumer-based categories such as banks and credit cards can ask the court to award them the right to garnish your wages. These judgment creditors can be awarded garnishment up to 25% of your disposable income (or the amount your income exceeds the federal minimum wage by 30 times: $217.50 per week). These types of debt are often adjusted or discharged in a bankruptcy, so filing a Chapter 7 or Chapter 13 can be very effective in these cases to stop garnishment long term.
Private student loans can only garnish wages after they obtain a final judgment against you. While a bankruptcy will result in the garnishment stopping immediately, after the automatic stay is lifted, you may once again be subjected to garnishment unless the overall judgment has been settled in some fashion during the bankruptcy.
In Florida, bankruptcy is not the only way to fight garnishments. For example, if you file income tax as head of household and only make $750 per week or less, your wages cannot be garnished. Furthermore, if you make more than $750 per week, your wages can only be garnished with your consent. But this exemption is not automatic. You must file an affidavit with the court claiming the exemption. In rare cases, you may have signed a contract with the creditor to waive your head of household exemptions. Some credit unions have this written in the fine print of their contracts.
The good news is that bankruptcy takes time, and during that time, the pain of garnishment will stop. Carefully examining your needs and the best course forward for you is an important step in the path to bankruptcy. Exploring all your options with an attorney can sometimes find solutions short of bankruptcy that might make more sense in your situation.