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Thursday, March 5, 2015

Can I Stop a Garnishment?

The laws governing garnishments are harsh. If you are being garnished, you don't need to be told that. What you need to know is that there is a way to quickly stop a garnishment and get relief from the debt that caused it. While is it not your only option, once a garnishment becomes active bankruptcy is mostly likely your best option.  

Garnishments in Michigan

Federal law places limits on wage garnishment amounts. While a state may impose stricter limits, Michigan has chosen not to. As such, federal law governs in Michigan. Creditors are allowed to garnish the lesser of 25% of your disposable earnings, or the amount by which your weekly disposable earnings exceed 30 times the federal hourly minimum wage (NOTE: different rules apply to child support). 

What Can Be Garnished

After a creditor sues you, obtains a judgment, and obtains a writ of garnishment, your wages, bank account, and state tax refunds may be garnished.  If the creditor is seeking to recover for a non-consumer debt, such as child support arrears, overpayment of unemployment benefits or social security benefits, and income tax debt, your federal tax refunds may be subject to offset or garnishment (NOTE: this is non-exhaustive list of debts that may lead to an offset or garnishment of your federal tax refund).

How to Stop a Garnishment

Once a garnishment has started, a person has very few options for stopping it. One option may be debt settlement; however, once a garnishment is in place there is very little incentive for a creditor to take less than what is owed and/or take payments at rate lower than what they will get from the garnishment. In my experience, debt settlement must be attempted prior to a writ of garnishment being entered to have any real chance of success. 

So, what other options are there beyond suffering through the garnishment, paying the debt in full, or quitting your job? Bankruptcy. Unfortunately, most non-bankruptcy options are only truly effective prior to the garnishment taking effect. Upon filing a Chapter 7 or Chapter 13 bankruptcy, an automatic stay immediately goes into effect. The automatic stay is essentially a federal court order that tells creditors that they have to stop all collection efforts, which includes harassing phone calls and letters, lawsuits, garnishment, foreclosure, repossession, seizure of property, etc. 

The automatic stay does not cause a wage garnishment or a non-periodic garnishment to stop immediately. It typically takes about 1 to 15 days for it to stop. This is because there are series of steps that must be taken before your employer, your bank or the State, can legally stop withholding funds pursuant to the garnishment order. Despite the delay in having the garnishment released, all funds taken after the date you file your bankruptcy must be returned to you in full. Bankruptcy may also allow you to recover funds that were garnished during the 90 days prior to the filing date of your case if the funds taken by the creditor exceed $600.00. 

The return of garnished funds may not be possible or may not make sense in certain situations, such as garnishment for child support arrears or garnishment for a non-dischargeable debt like student loans. Consultation with an experienced bankruptcy attorney is always necessary to determine what relief is available for your situation. 

The Bottom Line

Taking action before a judgment is entered is the best way to avoid a garnishment. Prior to a judgment being entered and a garnishment taking effect, there are many more options for resolving the debt in a way that is affordable. Consulting with an attorney that practices bankruptcy and debt settlement during the beginning stages of a lawsuit will limit your losses and give you the most flexibility on how you can resolve your debts. Unfortunately, this is not always possible. Despite legal notice requirements, many people aren't aware that they are being sued and a creditor is seeking garnishment until it is too late. However, even if the garnishment has started there is hope. Garnishment can be stopped quickly and the underlying debt can be eliminated by filing Chapter 7 or Chapter 13 bankruptcy. The faster you act, the faster you can get the relief you need.

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