Does Bankruptcy Stop Wage Garnishment

There are three prominent ways of stopping wage garnishment or salary garnishment. First, you can repay the entire debt, second you can let the lender take over the security and third, you can file for bankruptcy.But would it stop wage garnishment', the answer, is 'yes', but there are some exceptions. The effect of bankruptcy on wage garnishment, can be confusing due to the highly versatile conception of wage garnishment. To be frank, bankruptcy is not a method to get rid of wage garnishment, but bankruptcy does have certain effects on wage garnishment.

What is Wage Garnishment?

The principle of wage garnishment is simple, and it probably is as old as the concept of loans. The basic idea is that the employer of the person who has not repaid the debt, cuts a desired amount on a monthly basis from the person's monthly income and forwards it to the designated authority or directly to the lender. A wage garnishment is often ordered by the courts or a government authority against appeal by requisite receiver or creditor (lender). In some cases, a wage garnishment can be initiated by the mutual consent of the borrower and lender, which is stated to be a voluntary garnishment.

The existence of third-party which does the job of 'cutting' the requisite amount from the income of the debtor, and forwards it to the payee, is an absolute necessity. Often the third parties are employers or banks, acting upon the wage garnishment judgment which is provided by the court. Some common instances where the government and judiciary orders a wage garnishment, includes, tax default cases, loan or credit card bill default cases, child support and divorce compensation cases, fines owed to the government, etc. In theory, any person, company, agency, authority, institute or organization that owes money can be subject to income garnishment on a voluntary basis upon the orders of the court. It must be noted that there are certain wage garnishment rights regarding the rate of garnishment and also the date of garnishment. Such laws can differ from state to state, though there are several federal laws such as income tax laws that would come into picture.

Does Bankruptcy Stop Wage Garnishment?

The purpose for which the wages are to be garnished play an important role in the application of rules for wage garnishment in your case. Here are some common leads to the effect of bankruptcy on wage garnishment.

All wage garnishments for creditors become null upon the procedure of bankruptcy. The wage garnishment agreements and mechanisms are dismantled irrespective of the type of bankruptcy. Though depending upon the chapter, the garnishment may resume. In case of a Chapter 7 (complete liquidation) the garnishments are completely disabled. In cases of a Chapter 11, 12, 13 filings, the garnishments may resume.

The garnishments for state and federal tax usually do not stop except in cases where the business bankruptcy may be affecting the public interest drastically. Here dealing with wage garnishment becomes excessively difficult. Federal agencies such as IRS may suffer some drastic losses. Tax based wage garnishments that are applicable to individuals, are usually not abolished.

Wage garnishments for child support or divorce contributions are not abolished as a consequence of bankruptcies. Some garnishments such as student loan wage garnishment also do not get abolished but a temporary stay on the rights of creditors can be brought about by the courts. Such decisions differ from case to case and legal systems and the courts often adopt a humanitarian approach in worst case scenarios.

Thus, it can be said that wage garnishments by creditors and lenders or business garnishments can be stopped by the bankruptcy courts. The Federal and State tax garnishments are however, rarely abolished. Apart from that, social garnishments such as divorce compensations or child support cannot be abolished.