Bankruptcy and Garnishment

American Money 2 by Dana Rothstein

PHOTO: American Money 2, by Dana Rothstein

I am often asked about the effect that bankruptcy has on a garnishment. The answer is it depends. After a bankruptcy is filed, an automatic stay goes into effect. The stay stops most collection activities by creditors and prohibits new collections during the term of the bankruptcy. This means that wage garnishments are also stopped as long as the bankruptcy stay remains in effect. If a creditor wants to resume collection efforts, it must ask the court to lift the stay. A creditor must have a compelling and valid reason for doing so.

Bankruptcy can stop a garnishment, but recovery of garnished money depends on the timing of the bankruptcy filing. When we file bankruptcy for a client who has a garnishment, we also immediately file a suggestion of bankruptcy with the court that authorized the garnishment. The court who issued the writ of garnishment then dissolves the writ of garnishment. The employer is served a copy of the court order dissolving the writ and the garnishment ends. If your case gets dismissed without a discharge, then the creditor can resume the wage garnishment after dismissal. But if your debts are discharged during the bankruptcy, then the creditor may not resume the garnishment effort.

Contact our office at 321.504.9935 for a free consultation to find out more.

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