Generally, individuals file for bankruptcy after their creditors begin collection actions for repayment of outstanding debts. These actions may include written notices and daily phone calls. However, if the creditor is unable to obtain consensual repayment, they may seek additional legal remedies, including a wage garnishment order. When an individual experiences a wage garnishment, it is likely they are facing a financial hardship and garnishment will exacerbates the situation.
How Does Wage Garnishment Work?
Wage garnishment occurs when a creditor obtains a wage garnishment order. First, the creditor must sue the debtor and obtain a money judgment against an individual. After obtaining judgment they become a “judgment creditor”. Once the creditor obtains judgment against the debtor, they may seek a writ of execution against wages. Thereafter, the creditor will serve the writ to the debtor’s employer and they will be obligated to withhold a portion of the debtor’s earnings and send the withheld amount for payment of the debt.
New Jersey law limits the amount a creditor can garnish from an individual’s wages. The New Jersey wage execution laws are considered stricter than federal wage garnishment laws. Under federal law, a creditor can garnish 25% of the debtor’s disposable earnings, or disposable earnings less 30 times the federal minimum wage, whichever is less. In New Jersey, an individual may be garnished 10% of earnings if the individual earns less than 250% of the federal poverty level. If the individual earns more than 250% of the federal poverty level, creditors may garnish 25% of the debtor’s earnings.
How Can Bankruptcy Stop Wage Garnishment?
When an individual files a bankruptcy petition, they are required to provide a list creditors and their contact information. Following your bankruptcy filing, the court will notify your creditors of the filing and they will be responsible for stopping their wage garnishment efforts. If the creditor wants to resume collection, they will be required to file a motion with the bankruptcy court and provide a valid reason. An unsecured creditor, such a medical bills, simply wishing to resume the wage garnishment is not a valid reason to lift the automatic stay. It is extremely rare that an unsecured creditor will be able to gain stay relief and continue to garnish your wages, as the circumstances are very limited.
If the debt that was causing your wages to be garnished is considered a dischargeable debt in bankruptcy, then the wage garnishment will cease upon filing of the bankruptcy petition and the debt owed will be discharged following completion of the bankruptcy case. However, if the debt is considered non-dischargeable, then the wage garnishment will start again. Depending on the chapter of bankruptcy the individual files under, we may be able to resolve the non-dischargeable debt in the bankruptcy.
Some debts that are considered non-dischargeable include, court ordered child support, defaulted federally-back student loans, and unpaid income taxes that were due in the last three years. Contrary to popular belief, some taxes do go away in bankruptcy. Reference our prior blog for more information on discharging taxes.
If your wages are being garnished, or if you have been notified of an upcoming wage garnishment, please call our firm for a free consultation to discuss your potential case and options.