Will Filing For Bankruptcy Stop Wage Garnishments?
Wage garnishment will stop because of the automatic stay that’s triggered when you file a bankruptcy petition. (It’s called automatic because you don’t have to do anything other than file the petition to trigger the stay.) In law, a stay forces whatever is stayed to stop immediately. In this case, the stay stops all action by creditors against you as a person, against your possessions, and against the bankruptcy estate that’s created when you filed your papers. In practical terms, it means they can’t call you on the phone, send you bills, write you letters, sue you, garnish your wages, seize money out of your bank accounts, repossess your assets, or foreclose on your property. The automatic stay, in essence, erects a legal brick wall around you to protect you from the depredations of your creditors. If a creditor violates the stay after it has received clear notice, then you can sue it in the bankruptcy court, and if you’re successful, the creditor has to cover your court costs and attorney’s fees, which is highly unusual in American jurisprudence.
That being said, if a garnishment is a domestic support (child support or alimony) garnishment, the Bankruptcy Code has a carve-out to allow that type of collection action to continue. If your child support is being garnished from your checks, you’re not going to stop that by filing for bankruptcy.
Can All Types Of Bankruptcy Stop Wage Garnishment?
The automatic stay is triggered by the filing of any bankruptcy case, no matter which chapter, so wage garnishment will be terminated. Of course, we’re talking about a personal bankruptcy here; a corporation that files for bankruptcy is typically not having its checks garnished because it doesn’t get paychecks. In a personal bankruptcy, regardless of the chapter under which you file, the automatic stay is triggered and will stop the wage garnishment.
It’s better to think of it as a temporary bit of relief since there are some limitations on the automatic stay. Section 362(b) has a list of actions that are not stayed by the automatic stay.
Section 362(c) of the Bankruptcy Code contains an important limitation to the automatic stay in the case of a repeat filer. In 2005, Congress passed the Bankruptcy Abuse Prevention & Consumer Protection Act (BAPCPA), which included a correction to an abuse in repeat filings. Prior to BAPCPA, some homeowners were abusing the stay by filing multiple Chapter 13 bankruptcies.
To illustrate the abuse, let’s say we have a couple facing a foreclosure sale on their home. The husband files a Chapter 13 knowing that creditors are less likely to take action if there is the possibility that they’ll be paid through a Chapter 13 plan. Instead of filing a complete set of bankruptcy papers, the husband only files what we refer to as a face sheet filing, just enough to trigger the automatic stay. He takes no action to cure the filing deficiency, so 45 days later, the Court dismisses the case for failure to prosecute. Just as the foreclosure sale is ready to restart, his wife files a Chapter 13. That triggers the automatic stay again and stops the foreclosure sale. The wife also files a face sheet filing. She takes no action to cure the filing deficiency, so 45 days later the Court dismisses her case. When the foreclosure sale is ready to happen, the husband files to trigger the automatic stay. They tag-team each other to push off the foreclosure sale.
When creditors had had enough of this, they lobbied Congress to change the law. The way the law is written now, if you have had a bankruptcy case pending during the 12 months prior to the filing of the current bankruptcy case, the automatic stay terminates on day 30 unless, prior to that, you get the judge assigned to this new bankruptcy case to enter an order reinstating the stay. You’ll have to establish that you have been filing in good faith, that this isn’t just a mechanical thing where you file a paper. The standard is the heightened, “clear and convincing evidence.”
If you’ve had more than one bankruptcy case pending during the prior 12 months, then there is no automatic stay. In that situation, the wage garnishment could continue. You might take umbrage and go to the Court to say, “This creditor has violated the automatic stay,” but the creditor will point out that, because of these two prior bankruptcy cases during the previous 12 months, there is no automatic stay. The creditor will probably win.
In conclusion, the automatic stay is triggered in any bankruptcy case, and it will stop a wage garnishment. If, however, you have had previous bankruptcy cases pending during the 12 months prior to filing the current case, then there might not be an automatic stay, and the wage garnishment will continue.
For more information on Wage Garnishments in California, a free 20 Minute Phone Strategy Session is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.
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