Filing bankruptcy stops most wage garnishment and also prevents creditors from obtaining new garnishment orders against you. When you file bankruptcy, an “automatic stay” is issued automatically.
Wage garnishment enables creditors to take money from your paychecks when you stop making payments to them. Every state, including Michigan, has a prescribed legal method for seizing wages that debtors must follow.
What is wage garnishment in Michigan?
A wage garnishment is a legal procedure in which your employer is required by court order to withhold your earnings to pay a debt, such as child support.
If you don’t pay your debts, the people you owe money to may take up to 25% of your paycheck to recoup what you owe. This is called wage garnishment.
Wage garnishments do not include situations in which employees consented to their employers turning over a portion of their earnings to creditors as part of an agreement.
A creditor in Michigan can take whatever is left of your salary after all debts are paid. This might mean up to 25% of your disposable earnings or the number of your disposable earnings that is more than 30 times the federal minimum wage ($217.50 in a 2021 figure).
Will Chapter 7 bankruptcy stop the garnishment?
If you have your wages garnished, filing for Chapter 7 bankruptcy will generally prevent the garnishment (also known as wage attachment) from continuing.
Because of the automatic stay, most creditors are unable to continue with collection procedures during your bankruptcy case.
What is an automatic stay?
The automatic stay is a provision in the U.S. Bankruptcy Code that prevents creditors, collection agencies, and even some government departments from attempting to collect debts while your bankruptcy case is ongoing.
The major goal of an automatic stay is to provide you with some time and breathing room while the trustee oversees your case and examines your bankruptcy petition.
Chapter 7 and Chapter 13 bankruptcy with the automatic stay
The automatic stay is triggered when filing for bankruptcy, either Chapter 7 or Chapter 13 bankruptcy.
The automatic stay forbids most creditors from continuing with collection activities, which can be beneficial to both debtors and their lawyers (who may charge less than usual fees), as well as allowing debtors the opportunity to regroup during bankruptcy.
There is also a special automatic stay provision in Chapter 13 bankruptcy that protects co-debtors, such as co-signers on loans, from collection efforts.
Exceptions to the automatic stay
There are a few exceptions to the automatic stay and generally include cases of child support, student loans, and taxes. A creditor cannot take your next paycheck without first filing a lawsuit against you, winning the case, and obtaining a court injunction.
Domestic assistance obligations are not wiped out (discharged) in bankruptcy, so the creditor may not stop a garnishment while the case is pending, and most bankruptcy courts will not demand it.
Should you hire a law firm if they are garnishing your wages?
A creditor may seize a portion of your pay as part of wage garnishment to reimburse obligations you owe.
If you have debts that have been reduced to a judgment or taken by administrative orders, your wages may be garnished to pay them back. This includes child support, spousal support, back taxes, and student loans.
Whether you should hire an attorney or handle the garnishment some other way is determined by a variety of things, such as whether you don’t owe the debt or the legal costs will exceed the amount of your debt.
If you are dealing with an unsecured debt, it’s possible that having a lawyer issue a free evaluation for your case will be beneficial at times. Sometimes, if the creditor is taking too much or if you want to work out other payment alternatives with your lender, obtaining a legal opinion can assist.
If your employer is threatening to fire you because of the garnishment or if the creditor is attempting to get around the wage exemption by seizing a bank account, an alternative is for attorneys to evaluate your case and might give you alternatives.
Bankruptcy as an alternative to stopping wage garnishments
It’s important to note that while bankruptcy stops most wage garnishments, it does not cancel them entirely.
If you’re being wage garnished, you may be wondering if you can avoid it. In certain circumstances, doing nothing and allowing your wages to be garnished until the debt is paid is the wisest path forward.
It is critical to remember that a garnishment can be challenged at any time, regardless of whether the debt was incurred in good faith or not. However, it may be prudent to contest the garnishment (or amount) on your own, negotiate with the creditor, or hire a bankruptcy attorney at other times.
Let attorneys evaluate your case (in most cases they will do it for free!)
A bankruptcy attorney-client relationship is a confidential relationship that will put in the hands of your lawyer what actions should be taken with all your creditors. You can let your bankruptcy lawyer talk to government entities, as well as whoever is about to garnish your wages.
If it is a good idea to do a bankruptcy filing, after a free bankruptcy evaluation, most lawyers will give you their opinion and the pros and cons of a person who can file for bankruptcy (if that is you).
Remember all sensitive or confidential information is safe and necessarily secure in your attorney’s hands in case of a bankruptcy case to stop wage garnishment.
Can I have multiple bankruptcy filings and stop a garnishment order?
Yes, you can. Even if you don’t get a discharge, a second bankruptcy filing may be useful. You may not need a discharge depending on the situation. Sometimes you need just more time to pay off your debt.
Imagine you owed federal taxes that you couldn’t pay off in bankruptcy, and you couldn’t come up with a fair repayment plan. To avoid wage garnishment, you may file for Chapter 13 bankruptcy and stretch out the payments over a five-year Chapter 13 bankruptcy payment plan.
If you are thinking about filing for bankruptcy for a second or third time thinking that bankruptcy stops wage garnishment under the federal law, it is recommended to seek the help of a lawyer that can advise you on the benefits of another bankruptcy filing.
What happens to a domestic support obligation during bankruptcy?
A domestic support obligation is any debt incurred by a spouse, former spouse, child, or government entity before or after a bankruptcy filing that is owed to or recoverable by a spouse, former spouse, child, or governmental unit in the form of alimony, maintenance, or support.
The terms of a divorce decree, separation agreement, property settlement agreement, court order, or administrative decision are all valid sources for these obligations.
Section 523(a)(5) of the bankruptcy code exempts domestic support obligations from discharge, regardless of whether the case is filed under Chapter 7 or 13. Even after the bankruptcy case is finished, child or ex-spouse support obligations continue to exist.
I received my bankruptcy case number today. Does that stop a wage garnishment immediately?
The automatic stay is automatically effective once the bankruptcy case is filed, and it demands that all collection calls, lawsuits, and wage garnishments stop immediately. The bankruptcy court may impose severe fines and penalties on creditors who continue to collect after the entry of an automatic stay. However, you may not get the full benefit of the automatic stay on a second or third bankruptcy filing.
What are the most wages that can be garnished?
The law limits the amount that a judgment creditor may collect from your wages if it is garnishing them. The percentage of your disposable income that can be taken is limited to 25% of your total income, or the dollar amount that your income exceeds 30 times the federal minimum wage, whichever is smaller. However, governmental units may be entitled to an even higher garnishment amount.
Can my bank account be garnished without notice in Michigan?
A creditor can use garnishment to collect money from a garnishee. In Michigan, money may be taken from salary and other incomes, as well as bank and credit union accounts. The only notice you will receive is the notice from the Court that a creditor has filed a writ and request for garnishment. If uncontested, then the garnishment can happen after that at anytime and without further notice.
What assets are protected from garnishment in Michigan?
Money cannot be garnished if it comes from Social Security benefits and disability payments, Military Annuities and Survivors’ Benefits, Compensation for Injury, Death, or Detention of Employees of U.S. Contractors Outside the U.S., State Disability Assistance, Individual Retirement Accounts (IRAs), income benefits under the Michigan Civil Service Act and the Michigan Retirement Act, and ERISA pensions, among other places. However, beware that once that money goes into your bank account, it still may be garnished by a creditor and you will now need to begin dealing with the creditor to have them return those funds after you prove the funds garnished were actually protected funds.