An attorney should be able to explain to a client or potential client how bankruptcy works and what certain legal terms mean. Bankruptcy can be complicated and hard to understand, even for an attorney. So, it is not unusual that certain terms or concepts are simplified so that a person can have a better understanding of what going through bankruptcy means for them.
A discharge is one of the main purposes or goals of filing a bankruptcy. So, discharge is a word that bankruptcy attorneys use constantly and is a term that is often oversimplified. As a result, many debtors or potential debtors believe that a discharge extinguishes a creditor's claim. While a discharge does extinguish a creditor's claim to some extent, it is not accurate to say that the creditor's claim is extinguished. When a debtor receives a discharge, their personal liability for debt is being extinguished (assuming the debt is dischargeable). That means that the creditor's claim may survive in some form and may be enforceable in some way other than collecting against the debtor personally.
Secured Debt
When a person receives a discharge they are extinguishing their personal liability for debt. It is important to understand what happens when debt is secured by property, such as a home or car. If a person continues to make payments on secured debt either according to the applicable contractual terms or through a Chapter 13 plan, there is rarely any issue with keeping the property. However, if payments cease, necessary reaffirmation agreements are not signed, and/or the property is declared surrendered, the creditor can collect against the property that secures their claim. For example, when a debtor files Chapter 7 they discharge their liability on a home mortgage (unless a reaffirmation agreement is executed). Discharging the debtor's personal liability on a home mortgage does not mean the mortgage company can't collect against the home that secures their claim. So, if a debtor is surrendering a home through the bankruptcy or they fail to pay the home mortgage and the debt is not reaffirmed, the mortgage company can't collect against the debtor personally, but they can foreclose on the property. In other words, the debtor's personal liability is extinguished, but the creditor's claim still exists and can be enforced against the home itself.
Joint Debt - Codebtors/Cosigners
Understanding what a discharge does is also very important when there is codebtor or cosigner on a debt. Again, when a person receives a discharge they are extinguishing their personal liability for debt (assuming the debt is dischargeable). If someone else is liable for a debt, that person will remain liable after the debtor receives their discharge. For example, a father cosigns on an auto loan for his son. The son files Chapter 7 and surrenders the auto. Upon receiving a discharge, the son will no longer be personally liable for the auto loan. However, the father will remain liable on the entire balanced owed. The creditor can collect on their claim by repossessing the vehicle and collecting personally against the father for any unpaid balance.
The Bottom Line
An individual can obtain a discharge by filing Chapter 7 or Chapter 13 bankruptcy. Some debts are non-dischargeable in Chapter 7 and Chapter 13. Some debts are non-dischargeable only in Chapter 7.
Most bankruptcy attorneys, myself included, offer free consultations. By consulting with an experienced bankruptcy attorney, you can determine what your options are, how Chapter 7 or Chapter 13 can help you, and what obtaining a discharge would mean for you. A bankruptcy discharge can provide incredible relief. Make sure you understand your options so that you can choose the right course of action.
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
GR
Thursday, June 25, 2015
Friday, May 29, 2015
Can I Eliminate Medical Bills in Bankruptcy?
Medical debt is considered general unsecured debt and is dischargeable in a Chapter 7 or Chapter 13 bankruptcy. How you discharge or eliminate that debt is determined by what type of bankruptcy you file.
Chapter 7
As long as you are eligible for Chapter 7, the discharge will eliminate your personal liability for your medical bills, regardless of the amount owed. In other words, there is no limit to how much medical debt you can get rid of by filing Chapter 7.
Chapter 13
Chapter 13 bankruptcy will also eliminate your personal liability for your medical bills; however, there are debt limits in Chapter 13. Currently, the unsecured debt limit in Chapter 13 is $383,175.00. If you exceed the unsecured debt limit, you are not eligible for Chapter 13.
In Chapter 13, medical bills are put into a creditor class referred to as general unsecured debt, which would also include such debts as credit cards and unsecured loans. These types of debts are generally paid back at a fraction or percentage of what is owed. The unpaid fraction or percentage is eliminated or discharged upon plan completion and entry of a discharge order. The amount that much be repaid to general unsecured creditors depends on several factors, such as your income, budget and unexempt equity in personal or real property that you own.
The Bottom Line
Medical debt can be eliminated or discharged by filing bankruptcy. If you are struggling with medical debt or other debts, consult with a bankruptcy attorney to determine what type of bankruptcy makes sense for you and how your debts would be treated. I, like most bankruptcy attorneys, offer free consultations. So, take advantage and make sure you avoid garnishment and other nasty collection actions.
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
Chapter 7
As long as you are eligible for Chapter 7, the discharge will eliminate your personal liability for your medical bills, regardless of the amount owed. In other words, there is no limit to how much medical debt you can get rid of by filing Chapter 7.
Chapter 13
Chapter 13 bankruptcy will also eliminate your personal liability for your medical bills; however, there are debt limits in Chapter 13. Currently, the unsecured debt limit in Chapter 13 is $383,175.00. If you exceed the unsecured debt limit, you are not eligible for Chapter 13.
In Chapter 13, medical bills are put into a creditor class referred to as general unsecured debt, which would also include such debts as credit cards and unsecured loans. These types of debts are generally paid back at a fraction or percentage of what is owed. The unpaid fraction or percentage is eliminated or discharged upon plan completion and entry of a discharge order. The amount that much be repaid to general unsecured creditors depends on several factors, such as your income, budget and unexempt equity in personal or real property that you own.
The Bottom Line
Medical debt can be eliminated or discharged by filing bankruptcy. If you are struggling with medical debt or other debts, consult with a bankruptcy attorney to determine what type of bankruptcy makes sense for you and how your debts would be treated. I, like most bankruptcy attorneys, offer free consultations. So, take advantage and make sure you avoid garnishment and other nasty collection actions.
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
Thursday, April 9, 2015
Discharging Divorce Obligations
Divorce is one of the leading causes of debt accumulation. As such, divorce often leads to filing bankruptcy. Conversely, financial problems often cause or exacerbate marital problems which ultimately lead to divorce. This cause and effect relationship between bankruptcy and divorce makes for an unusually interrelated relationship.
In my experience, consulting with a bankruptcy attorney before filing for divorce typically makes the bankruptcy and divorce less complicated and more cost effective. I am not saying that it's always best to file bankruptcy prior to filing for divorce. The timing and order of the legal proceedings depend on many factors and should always be discussed with the attorneys involved. However, by filing bankruptcy jointly and receiving a discharge before filing for divorce, it may be possible to avoid spending significant time and arguments on debt allocation and miscellaneous support issues. The more time a divorce attorney spends on a case, the higher the attorney fees. The fewer the arguments the better.
In most cases, a person files for bankruptcy after they get divorced. This may be because the judgment of divorce created new overwhelming debt obligations, attorney fees were paid at the expense of other existing debt obligations, or the change in household income and expenses makes it so that a person can no longer meet their debt obligations. So, the question is often what impact does the bankruptcy have on the divorce obligations such as domestic support, property settlement and other marital dissolution obligations.
Exceptions to Discharge
Section 523 of the Bankruptcy Code provides a list of debts that are not subject to a bankruptcy discharge. All of the §523 exceptions to discharge apply in a Chapter 7. Most, but not all, of the §523 exceptions to discharge apply in a Chapter 13. Understanding what is dischargeable in a Chapter 7 and what is dischargeable in a Chapter 13 is crucial for deciding what type of bankruptcy makes the most sense.
There are two specific Bankruptcy Code provisions that apply to divorce related debt and its dischargeability. Under §523(a)(5) debt for a domestic support obligation is non-dischargeable. Under §523(a)(15) debt that is incurred "in the course of a divorce or separation or in connection with a separation agreement, divorcement decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit" is also non-dischargeable. To keep things simple, I like to refer to the debt described in §523(a)(15) as "marital dissolution obligations."
Discharge of Domestic Support Obligations
The non-dischargeability of domestic support obligations is fairly straightforward. Section 523(a)(5) states, "(a) [a] discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual from any debt (5) for a domestic support obligation."
The Bankruptcy Code defines domestic support obligation under §101(14)(A). That Section states:
The §523(a)(5) domestic support exception applies in both Chapter 7 and Chapter 13. This exception to discharge is considered self-executing, which means that the debt automatically survives a bankruptcy discharge. In other words, the recipient of such a payment does not need to file an adversary proceeding to make the debt survive the bankruptcy discharge.
Discharge of Marital Dissolution Obligations
Section 523(a)(15) of the Bankruptcy Code makes non-dischargeable most property settlement agreements and other debts incurred through a divorce or separation or through a related agreement, court order, decree, or other applicable determination. Specifically, the Section states:
In my experience, consulting with a bankruptcy attorney before filing for divorce typically makes the bankruptcy and divorce less complicated and more cost effective. I am not saying that it's always best to file bankruptcy prior to filing for divorce. The timing and order of the legal proceedings depend on many factors and should always be discussed with the attorneys involved. However, by filing bankruptcy jointly and receiving a discharge before filing for divorce, it may be possible to avoid spending significant time and arguments on debt allocation and miscellaneous support issues. The more time a divorce attorney spends on a case, the higher the attorney fees. The fewer the arguments the better.
In most cases, a person files for bankruptcy after they get divorced. This may be because the judgment of divorce created new overwhelming debt obligations, attorney fees were paid at the expense of other existing debt obligations, or the change in household income and expenses makes it so that a person can no longer meet their debt obligations. So, the question is often what impact does the bankruptcy have on the divorce obligations such as domestic support, property settlement and other marital dissolution obligations.
Exceptions to Discharge
Section 523 of the Bankruptcy Code provides a list of debts that are not subject to a bankruptcy discharge. All of the §523 exceptions to discharge apply in a Chapter 7. Most, but not all, of the §523 exceptions to discharge apply in a Chapter 13. Understanding what is dischargeable in a Chapter 7 and what is dischargeable in a Chapter 13 is crucial for deciding what type of bankruptcy makes the most sense.
There are two specific Bankruptcy Code provisions that apply to divorce related debt and its dischargeability. Under §523(a)(5) debt for a domestic support obligation is non-dischargeable. Under §523(a)(15) debt that is incurred "in the course of a divorce or separation or in connection with a separation agreement, divorcement decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit" is also non-dischargeable. To keep things simple, I like to refer to the debt described in §523(a)(15) as "marital dissolution obligations."
Discharge of Domestic Support Obligations
The non-dischargeability of domestic support obligations is fairly straightforward. Section 523(a)(5) states, "(a) [a] discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual from any debt (5) for a domestic support obligation."
The Bankruptcy Code defines domestic support obligation under §101(14)(A). That Section states:
The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—
(A) owed to or recoverable by—(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; orBasically, what this means is that a debtor (person filing bankruptcy) cannot discharge their obligation to pay alimony, maintenance, child support or anything else that would be considered support.
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.
The §523(a)(5) domestic support exception applies in both Chapter 7 and Chapter 13. This exception to discharge is considered self-executing, which means that the debt automatically survives a bankruptcy discharge. In other words, the recipient of such a payment does not need to file an adversary proceeding to make the debt survive the bankruptcy discharge.
Discharge of Marital Dissolution Obligations
Section 523(a)(15) of the Bankruptcy Code makes non-dischargeable most property settlement agreements and other debts incurred through a divorce or separation or through a related agreement, court order, decree, or other applicable determination. Specifically, the Section states:
"(a) [a] discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual from any debt (15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorcement decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit."Examples of non-dischargeable marital dissolution obligations include the following:
- Promise by one spouse to pay a percentage of equity in a home to the other spouse
- Promise by one spouse to pay other spouse's debts, including general unsecured debt
- Attorney fees awarded to a spouse in a decree or other court order*
Example number two above comes up frequently in bankruptcy. It is common to see a joint debt such as a credit card that is owed by both former spouses. The debtor (person filing bankruptcy) upon receiving a discharge would eliminate their personal liability on the debt as to the credit card company. However, if there is an indemnification or a hold harmless provision, the debtor could still be held liable for the debt by their former spouse.
*The award of attorney fees to a spouse in a decree or other court order may be non-dischargeable. If the decree or court order states that the attorney fees are in the nature of support, it is likely that the fees will be non-dischargeable under §523(a)(5). If the basis for award the attorney fees is unclear, they may still be non-dischargeable under §523(a)(15) as a marital dissolution obligation. Any attorney fees incurred to enforce a judgment of divorce can also be deemed non-dischargeable under §523(a)(15). This would likely include any attorney fees necessary to enforce a property settlement or other promise included in a judgment of divorce.
The §523(a)(15) exception to discharge is also self-executing, which means that the debt automatically survives a Chapter 7 bankruptcy (see next section for more explanation). So, the recipient of such a payment does not need to file an adversary proceeding to make the debt survive a Chapter 7 discharge.
Choosing Between Chapter 7 and Chapter 13
When deciding what type of bankruptcy is appropriate many factors must be taken into account. Understanding the differences between domestic support and marital dissolution obligations and their dischargeability under Chapter 7 and Chapter 13 is crucial for making the right decision.
A domestic support obligation is non-dischargeable under Chapter 7 and Chapter 13. Marital dissolution obligations, defined by §523(a)(15), are non-dischargeable only under Chapter 7. Section 1328(a)(2) of the Bankruptcy Code does not include §523(a)(15), which means this type of debt can be discharged by a Chapter 13. Depending on the potential debtor's financial situation and the extent of marital dissolution obligations, this may be reason enough to file Chapter 13 instead of Chapter 7.
A domestic support obligation is non-dischargeable under Chapter 7 and Chapter 13. Marital dissolution obligations, defined by §523(a)(15), are non-dischargeable only under Chapter 7. Section 1328(a)(2) of the Bankruptcy Code does not include §523(a)(15), which means this type of debt can be discharged by a Chapter 13. Depending on the potential debtor's financial situation and the extent of marital dissolution obligations, this may be reason enough to file Chapter 13 instead of Chapter 7.
Since marital dissolution obligations are dischargeable in Chapter 13, the former spouse/creditor of the debtor has an incentive to file an adversary proceeding in a Chapter 13 to determine whether the debt owed falls under 523(a)(5) or 523(a)(15). If the former spouse/creditor can demonstrated the debt is in the nature of support, they can preserve their right to collect on the debt owed to them.
The Bottom Line
If you have significant debt and divorce is on horizon, consulting with a bankruptcy attorney before filing for divorce may make bankruptcy and divorce simpler and more cost effective.
To determine which should come first, you should discuss your situation with a bankruptcy attorney and a divorce attorney. You should also make both attorneys aware of each other. The attorneys, if they are separate people, can work together to implement a plan that is going to get you where you need to be in the least painful way possible.
Chapter 7 may appear to be the best option for resolving your debts, but if there are significant marital debt obligations that would survive a Chapter 7 discharge, Chapter 13 needs to be discussed with an attorney and given a hard consideration.
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
If you have significant debt and divorce is on horizon, consulting with a bankruptcy attorney before filing for divorce may make bankruptcy and divorce simpler and more cost effective.
To determine which should come first, you should discuss your situation with a bankruptcy attorney and a divorce attorney. You should also make both attorneys aware of each other. The attorneys, if they are separate people, can work together to implement a plan that is going to get you where you need to be in the least painful way possible.
Chapter 7 may appear to be the best option for resolving your debts, but if there are significant marital debt obligations that would survive a Chapter 7 discharge, Chapter 13 needs to be discussed with an attorney and given a hard consideration.
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
Saturday, March 14, 2015
What is Chapter 7 Bankruptcy?
Chapter 7 is a form of bankruptcy that allows an individual to make a fresh start by legally eliminating, or "discharging", debt. Filing a Chapter 7 bankruptcy can eliminate most, if not all, or your debts. It is a quick and powerful tool to put an end to financial stress, release financial obligations for unwanted real or personal property, and stop harassing creditor phone calls.
While Chapter 7 is a liquidation bankruptcy, individuals are allowed to claim certain assets and properties as exempt. Most often the available exemptions allow individuals to retain assets and properties they wish to keep. When exemptions are insufficient for keeping desired assets, individuals can pursue Chapter 13, which allows for significant debt elimination but does not involve liquidation.
By filing a Chapter 7 you can eliminate such debts as:
While Chapter 7 is a liquidation bankruptcy, individuals are allowed to claim certain assets and properties as exempt. Most often the available exemptions allow individuals to retain assets and properties they wish to keep. When exemptions are insufficient for keeping desired assets, individuals can pursue Chapter 13, which allows for significant debt elimination but does not involve liquidation.
By filing a Chapter 7 you can eliminate such debts as:
- Credit cards
- Personal/unsecured loans
- Debt which forms the basis of judgments and garnishment
- Medical bills
- Past due utility bills
- Loan deficiency debt from repossessions and foreclosures
- Mortgages
- Auto loans and leases
- Qualified income tax debt
- Overpayment of benefits associated with social security or unemployment compensation
The above list of debts that may be subject to a Chapter 7 discharge is not exhaustive. To find out if a debt you owe is dischargeable, call our office for a free phone or in-person consultation - 616.389-0629.
Visit Law Offices of Ryan F. Beach
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
Can a Probate Estate File Bankruptcy?
Rule 1016 of the Federal Rules of Bankruptcy Procedure governs what happens when a debtor is deceased. A probate estate cannot file for bankruptcy. The fresh start goal is personal to the debtor. Allowing a personal representative to substitute would allow them to accomplish indirectly what it could not directly.
If a debtor passes after filing Chapter 7, the case will continue and the bankruptcy estate will be administered. Rule 1016 will sometimes allow a Chapter 13 case to continue after the debtor’s death, “if further administration is possible and in the best interest of the parties.”
If you or your family are going through the probate process and there were significant debts owed by the deceased individual, your questions should be directed toward a probate attorney.
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If a debtor passes after filing Chapter 7, the case will continue and the bankruptcy estate will be administered. Rule 1016 will sometimes allow a Chapter 13 case to continue after the debtor’s death, “if further administration is possible and in the best interest of the parties.”
If you or your family are going through the probate process and there were significant debts owed by the deceased individual, your questions should be directed toward a probate attorney.
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
Friday, March 13, 2015
Pawn Loans in Bankruptcy
All debts must be disclosed
and treated in a bankruptcy, including a loan with a pawnshop. It is somewhat
unusual to see this type of debt in bankruptcy. I suspect that is because
debtors don’t think of bringing it up to their attorney and most attorneys don’t
think to ask if there are any pawn loans.
If you are filing Chapter 7, you may eliminate
or "discharge" the debt owed to a pawnshop; however, if the debt is
not satisfied you will lose the property used as collateral. If you are filing
Chapter 13, it may be possible to treat the debt in a Chapter 13 plan and save
the property used as collateral.
Property
of the Estate
Under 11 USC 541(a)(1), any property in which a debtor has a legal or equitable interest becomes
"property of the estate." As long as the contractual or statutory (state
law) redemption period has not expired, the collateral used for a pawn loan
and/or the right to redeem that collateral becomes part of the bankruptcy
estate. Property of the estate is protected by the automatic stay provision of
the Bankruptcy Code (see 11 USC 362).
If all applicable redemption periods have expired at the time a bankruptcy is filed, the collateral or a right to redeem the collateral is not property of the bankruptcy estate and the automatic stay does not apply. This is because once the right of redemption no longer exists, ownership of the collateral vests in the pawnshop. In other words, there is no legal or equitable interest to protect.
If all applicable redemption periods have expired at the time a bankruptcy is filed, the collateral or a right to redeem the collateral is not property of the bankruptcy estate and the automatic stay does not apply. This is because once the right of redemption no longer exists, ownership of the collateral vests in the pawnshop. In other words, there is no legal or equitable interest to protect.
Automatic
Stay
If an applicable redemption period has not yet
expired at the time of bankruptcy filing, the pawnshop cannot take the final
action to gain ownership of the property because such action would be considered
an action to enforce a lien, which would be a violation of the automatic stay.
The application of the automatic stay and its
effect on redemption is not absolutely clear. However, the majority of courts
have held that the automatic stay provision under §362 of the Bankruptcy Code
does not toll the running of the redemption period. Assuming the majority
position is correct, if the bankruptcy is filed before the expiration of the
applicable contractual or state redemption period, §108(b) extends the
redemption period for 60 days from the filing date of the bankruptcy. Anything
beyond that 60-day extension would be an impermissible creation of a property
right. Property rights are created and defined by state law. So, unless some federal
interest demands a different result, the filing of a bankruptcy will have no
impact.
The
Bottom Line
The debt owed to a pawnshop can be discharged
by filing bankruptcy, but discharging the debt does not allow a debtor to save
the property used as collateral. Chapter 13 may offer some limited relief, but
timing is crucial. If the applicable redemption periods for the collateral have
expired, a debtor’s ability to treat the pawn loan in a Chapter 13 is most
likely nonexistent. If an applicable redemption period has not expired, a debtor may
treat the pawn loan over the course of the later of the end date under the
applicable contract, the redemption period provided by state law, or within the
60 days following the filing of the bankruptcy. The available time to treat a pawn loan is extremely short. Being aware
of the limited time to treat a pawn loan will help in coming up with a successful plan to save the property.
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
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.
Visit Law Offices of Ryan F. Beach
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.
Visit Law Offices of Ryan F. Beach
This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
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