Source of Funds

There is a misunderstanding among a few people who elect to go through Chapter 13.  I want to emphasize “few” – this is by no means a common misunderstanding.  But I’ve had to debunk this myth one too many times, so it’s time to put this out there and clarify.
The Chapter 13 Trustee is NOT an independently wealthy individual who pays all of your debts for you, and then you pay the Trustee back over the course of your Chapter 13 Plan.
The Chapter 13 Trustee acts as a conduit for your payments to creditors.  You make payments to the Trustee, and the Trustee then redistributes those funds to your creditors in a manner (order of priority and amounts) that are dictated by the terms of the Plan, statutes, and other regulatory policies.
Your creditors are enjoined from pursuing you separately for their unpaid balances while you are in bankruptcy, until at the end when you ultimately receive your discharge from certain remaining unpaid balances.
If you default – if you make less than your full monthly plan payment or if you stop making your plan payments altogether – the Trustee simply will not have funds to pay your creditors.  It should not come as a surprise to anyone that individual creditor accounts show no recent payments from the Trustee if you have stopped making plan payments to the Trustee.

Customer Service

After filing for bankruptcy, MOST debtors will not be speaking on the phone to MOST of their creditors.  But some will.  And talking to the right person may make the difference between a productive phone call and a hair-pulling experience.
Some of you may need to contact your creditors to arrange for reaffirmation agreements after filing a Chapter 7 Bankruptcy.  Some of you may need to contact your creditors to make post-filing mortgage payments after filing a Chapter 13 Bankruptcy.  Still others may need to call creditors for different reasons entirely.
But no matter why you’re calling a creditor, if you dial a generic 800 number to reach customer service – particularly with the bigger national creditors like Bank of America, Wells Fargo, Capital One, Citi, and others – odds are the first person you speak to isn’t going to know the first thing about bankruptcy.
Most front-line customer service agents are trained only to answer basic questions, and many of them have little training and little experience, as the revolving doors on those jobs spin quite rapidly.  Even higher level supervisors often aren’t particularly helpful.
If you have filed for bankruptcy, the very first thing you should tell any creditor you contact – no matter the reason – is that you have filed for bankruptcy and ask to speak to their “bankruptcy department” or “loss mitigation department”.
It’s very important that you only do that AFTER you have filed for bankruptcy.  Remember that hiring an attorney to file for bankruptcy is not synonymous with actually having filed your case.  If you tell a customer service agent that you have filed for bankruptcy when you actually have only hired an attorney, you’re going to confuse the hell out of the representative.
Once you reach the bankruptcy department, you can ask questions about reaffirmation agreements, make post-petition payments on mortgages, and so forth – and you’ll probably have an easier time of it since the people in those departments tend to have better training and are specifically trained to deal with bankruptcy issues.

Informal Bankruptcy Protections

When a bankruptcy case is filed with the court, an “automatic stay” kicks in which protects you from most debt collection efforts.  The automatic stay is temporary and applies while the bankruptcy case is pending.  In most cases, the automatic stay protections are them replaced by the permanent protections offered by the bankruptcy discharge.
But even before you file your bankruptcy case, just knowing that you intend to file for bankruptcy is often enough to deter most creditors from attempting to collect against you for your debts.  Although technically and legally most are allowed to continue to make collection efforts, most will stop once they can confirm that you have indeed hired an attorney to file for bankruptcy – as a pragmatic matter.
Why would your creditor stop pursuing you for a debt if they are legally entitled to pursue you?
Let’s say I’m a collection agent for Acme Collections, LLC.  I’ve been attempting to collect a $500 debt from you for the past 6 months to no avail.  Seeing no other recourse, I’m thinking about filing a lawsuit against you in small claims court to recover the $500.  Yes, it will cost my company money to file the lawsuit – my company will have to pay court filing fees, pay for an attorney to file the paperwork, and other costs incidental to the lawsuit – but most (if not all) of those costs can be added to the bill I’m trying to collect.  So what may have started out as a $500 debt will become a $1300 debt if my company is successful in obtaining a judgment against you.
But what if you tell me that you’ve retained an attorney to file for bankruptcy?  I call your attorney and confirm that yes, you did in fact hire that attorney.  The bankruptcy case isn’t filed yet, so technically, my company can still file a lawsuit against you.  But should we?
Well, probably not.  My company is already short the $500 you owe it.  If it invests the time and money into filing a lawsuit – even if my company prevails and gets a judgment against you – that judgment can be discharged in the bankruptcy case.  My company’s only hope is to rush through the lawsuit, garnish as much of your wages as it can before you file for bankruptcy, and hope that it doesn’t have to turn over the money as a recoverable preference.  Not at all likely.
So without even filing for bankruptcy, just the fact that you have hired an attorney to begin the process of filing for bankruptcy is enough to deter my company from filing a lawsuit against you.  In all likelihood, my company will sit back and wait for its notice that the bankruptcy case has been filed.
So what’s the lesson to be learned here?  If you’re planning to file for bankruptcy and you’ve hired an attorney – make sure your creditors know it – particularly the ones who haven’t yet invested the time or money to file a lawsuit against you.  Don’t ignore phone calls.  Make sure that you always refer your creditors to your bankruptcy attorney.

Debt Collector Threats / Scaring People Away from Bankruptcy

I’ve written previously on the topic of debt collectors who threaten people with criminal charges if they don’t pay their bills.  That post is just over three years old, and so I wanted to update that post and also talk about another common threat – that your debt can’t be included in your bankruptcy case.
First and foremost, what CAN debt collectors do?

  1. Prior to filing for bankruptcy, any creditor has the right to file a lawsuit and obtain a judgment against you for the debt you owe.  Once your bankruptcy case is filed, any civil litigation that hasn’t begun is prevented and any civil litigation that is pending is terminated.
  2. Creditors who believe that they can make a criminal case for fraud can press charges with the appropriate prosecuting agency.  Bankruptcy does not stop these proceedings.
  3. If a creditor believes they can make a case for fraud or misrepresentation (523(a)(2)), fraud or embezzlement in a fiduciary capacity (523(a)(4)), or willful or malicious injury (523(a)(6)), then they can file an adversary proceeding to have the debt declared non-dischargeable.

But here’s what a debt collector can NOT do.

  1. Enforce a civil judgment that is discharged in bankruptcy.  Civil lawsuits and judgments – in and of themselves – are not special debts.  Just because a judgment has been entered against you does not mean that the debt cannot be discharged in bankruptcy.
  2. Creditors cannot seek to collect a debt by threatening criminal prosecution.  What does that mean?  It means that if they think they have a criminal case, then they should just press charges.  They cannot try to strike a deal with you where they drop the charges in exchange for payment from you.  If they do, then they are potentially guilty of two things…
    1. If a bankruptcy case has been filed and they make these threats, then they are in violation of the automatic stay.  Acts of criminal prosecution are distinguishable from threats of criminal prosecution.  The former is not stayed by bankruptcy, but the latter is stayed.  Desert Palace, Inc. v. Baumblit (In re Baumblit), 15 Fed. Appx. 30, 35-36 (2d Cir. N.Y. 2001) and Batt v. Am. Rent-All (In re Batt), 322 B.R. 776, 779 (Bankr. N.D. Ohio 2005).
    2. Even if a bankruptcy case is not filed, they would be guilty of criminal extortion in Wisconsin, under Wis. Stat. sec. 943.30.

Here are some other important things to remember…
Just because a creditor has the right to file an adversary proceeding under 523(a)(2, 4, or 6), and just because a creditor has the right to press criminal charges, that doesn’t mean that they’re going to.  The intent element to showing fraud is extremely difficult to prove.
99% of the time, the debt collector is blowing smoke – trying to scare you into paying the debt rather than filing for bankruptcy.  It’s an incredibly successful tactic, but also an illegal one.

When is it too late to file bankruptcy to save your home from foreclosure?

Once in a while, I’ll get a phone call from someone who wants to know if I can help them file bankruptcy to save their home from foreclosure.  They tell me that the Sheriff’s Sale is scheduled soon…  Tomorrow morning, in fact.
Can I help them?  Yes.  But that phone call should have occurred much MUCH sooner.
It might not be too late to save your home now, but there are deadlines.  Time is ticking.
First, let’s talk about the legal limitations.
  • Under state law, the redemption period ends once the house is sold at the sheriff’s auction.  Under this deadline, the client has only given me a couple of hours to do what ought to be done over the span of – at minimum – a couple of weeks.
  • Judge Kelley, a bankruptcy judge here in the Eastern District of Wisconsin, has ruled that debtors can still stop a foreclosure up until the date that the sale is confirmed by the state court.  Confirmation of sale typically takes place about two weeks after the Sheriff’s Auction.  In re Wescott, 309 B.R. 308 (Bankr. E.D. Wis. 2004).  Under this deadline, we’ve got a little more time to get the case ready to file – but still not very much time.

Last week, we talked about people who procrastinate in hiring an attorney until things get really really bad, and that there are benefits to hiring an attorney early on – when you are beginning to struggle financially.
Procrastinating in a foreclosure situation is especially troubling because in the State of Wisconsin, the foreclosure process is really quite long – particularly compared to the process in other states.
In a typical residential foreclosure where the homeowner has not abandoned the property, a foreclosure lawsuit is typically not filed until there are two or more missed mortgage payments.  Add another 6-8 weeks before a hearing is held and a judgment of foreclosure is entered (assuming that the homeowner doesn’t contest the foreclosure and that the court docket isn’t swamped).  Then add your standard redemption period of 6 months.  Then the Sheriff’s Sale, and another 2 weeks to get the sale confirmed.  All in all – the typical foreclosure case gives you about 10 months minimum to save your home – from the time you miss your first mortgage payment.
In other words – it’s sort of ridiculous to get a call the night before the Sheriff’s auction.  You had 10 months, if not more.  And frankly, a lot of foreclosure lawsuits are taking a lot longer than 10 months to pay themselves out.
Okay, so all I’ve done so far is explain what your deadlines are and why you shouldn’t wait until the last minute to call a bankruptcy attorney.  But what are the advantages to hiring a bankruptcy attorney early on?
  1. Bankruptcy is complicated.  Chapter 13 is even more complicated than Chapter 7.  If you are going to use Chapter 13 as a vehicle to save your home, you want to give yourself plenty of time to appreciate what you’re getting into.  If you call an attorney the night before the Sheriff’s sale, then you’ll be forced to make a lot of quick, snap decisions that you may regret later.  You’ll also want to allow yourself plenty of time to ask questions.
  2. On that same note, it does take an attorney some time to prepare your case properly.  Filing a “bare bones” petition is dangerous.  If the attorney has not had sufficient time to interview you properly, review your case properly, do his due diligence and research, and to advise you of important information before your case is actually filed.  Asking an attorney to slap together a petition and schedules in a short period of time virtually guarantees slop work, and that could cause big problems later on.  You should allow at least 6 weeks for good, thoughtful preparation.
  3. You’ll have less to pay!  In most Chapter 13 cases, you’re proposing to cure the default.  Each month that passes between your initial missed payment through the Sheriff’s sale just adds to your bill to the mortgage company – to say nothing of late fees, penalties, and interest.  The sooner you can file a bankruptcy case, the less you’ll have to pay back to the mortgage company.

What is the “Bankruptcy Estate”?

Last week, I had a client who had just recently filed for bankruptcy under Chapter 7.  Her intention was to reaffirm on her mortgage so that she could retain her home.  When she contacted her creditor to make arrangements for the reaffirmation agreement, she heard an automated message that sent her into a panic.
She called my office to ask me what they meant.  I set-up a conference call with the number she had called so we could both listen to the message together.  The number turned out to be a special number that people who had filed bankruptcy were supposed to call, and the automated message warned the callers that all of the client’s assets were part of the bankruptcy estate.
Technically, there was nothing inaccurate about the automated message.  When a debtor files for bankruptcy, all of their assets do indeed become part of the bankruptcy estate.  The problem was how the message was worded, and the fact that the message made any reference to the bankruptcy estate at all.  The message was worded in such a way (and in retrospect, I think it was done so intentionally) to prey on the relative naiveté of a typical debtor in bankruptcy and cause unnecessary panic.
First of all, most people filing for bankruptcy struggle with making distinctions between assets and debts, and  understanding the difference between disclosing a debt and having a debt discharged.  In fact, most people refer to it as “including or not including” debts, and they think that including a debt is synonymous with disclosure and discharge, when in fact, it is not.
So, as a result of that common misconception mixed with the cryptic automated message, my client believed that her mortgage lender was telling her that she had forfeited her home in the bankruptcy.  She hadn’t, of course.  But that brings us to today’s topic.  What is the “bankruptcy estate”?
The bankruptcy estate is one of those concepts that most people remain oblivious to because – in 99% of cases – its effects are not readily observable.  It’s a sort of behind-the-scenes concept, but one that plays a very crucial role in bankruptcy.
When a bankruptcy case is filed, all assets of the debtor (including real estate, motor vehicles, personal property, financial accounts, and legal ownership interests of all other kinds) become property of the bankruptcy estate (with a few exceptions).  This is laid out at 11 U.S.C. § 541.
The reason most debtors are unaware of this is because there is very rarely any manifestation of this transfer.  Debtors retain physical possession of all of their assets, including the ability to use and dispose of said assets (although technically, because of the bankruptcy estate, they are not supposed to dispose of assets – this is really only relevant when it comes to larger assets).
The bankruptcy estate is analogous to a probate estate, which is the legal entity or “thing” that owns the stuff of a dead person until the probate process runs its course and the assets of the decedent have been passed on to his/her heirs.
In fact, the existence of the bankruptcy estate is one of the key components necessary to making the automatic stay function at all.  One of the reasons that your creditors cannot garnish wages and repossess vehicles or foreclose property while a bankruptcy case is pending is because – technically – the assets are not yours, but instead they belong to the bankruptcy estate.  And there they will remain while the case is pending, which allows the trustee and the court to review your finances without the interruption of creditors going after assets.
The existence of the estate is also a necessary component to allow the trustee to liquidate assets that may be non-exempt.
In most cases, assets are never seized by the trustee, and so the client remains blissfully unaware that although they retain possession and use of their stuff, that their stuff is technically not theirs.
But fear not!  Like a probate estate, a bankruptcy estate is not permanent.  After the case is no longer pending, the bankruptcy estate is dissolved and ownership interests revest back upon the original owner (you).  Again, it’s very unceremonious, and chances are you’ll never notice that anything actually happened.  In Chapter 7 cases, the revestment typically happens at the same time you receive your discharge.  In Chapter 13, it can happen either at discharge or at confirmation of the plan (and there are strategic reasons to choose one over the other, in terms of legal protections).

Why are debt collectors so rude?

The Problem
I will often hear from my clients stories about how debt collectors are rude to them.  It comes as a surprise to many that debt collectors are unswayed when you tell them you don’t have money to pay a bill.  You tell them that they can’t squeeze blood out of a turnip, yet they keep harassing you – screaming, threatening, and humiliating.  They call you 10… 20… 30… 40 times a day – at all hours.  Then they start calling you at work.  They start calling your family and friends – anyone whose number they can get their hands on who they think you might be able to convince you to pay the debt.  Anyone who they think you’ll be embarrassed to have find out that you’re behind on your bills.
But you’ve told them over and over again that you simply don’t have the money.  Why are they being so stubborn?
Why?  For two simple reasons: because of money and because it works.
The Explanation
To understand the influence of money, it’s helpful to know a thing or two about debt collectors.  There are generally three types.  In-house debt collectors – people who, for example, work for the hospital that you just had surgery at and whose job it is to make phone calls to try to collect on the bill.  Third party collection agencies – companies who are essentially contracted out to do the collections for a creditor and who are generally paid a percentage of the debt payments that they successfully recover.  Junk debt buyers – these are third party companies that purchase the right to a debt (giving the original creditor some immediate funds, though less than what was originally owed).
In each case – the debt collectors are highly motivated to collect the debt.  In the case of collection agencies, they usually don’t get paid unless they recover money for the original creditor.  In the case of debt junk buyers, they lose out on their investment if they are unsuccessful in recovering money to cover the purchase.  Individual employees within these companies might also be given an incentive to collect on the debt as many of them are paid a commission for what they collect.
Money is a strong motivator in all sorts of facets of life, so when a debt collection company’s livelihood hinges on getting you to pay your debt, they are understandably not going to fold just because you told them that you’re broke.  They are going to harass and badger you until they’re sure that you really don’t have any money, and then they’re going to keep at it.
In the process of explaining the influence of money, I’ve also covered a great many reasons why these tactics work.  They are harassing.  People will break open piggy banks to scrounge up some money to make a payment to debt collectors, if it means their telephone will stop ringing off the hook.  People will take loans out on their 401(k) or look to a home equity loan if it means that they won’t be outed as delinquents.  There is incredible social stigma against defaulting on your debt – with many of our parents instilling this notion in our heads that if we incur a debt, we have a responsibility to pay it.
The Consequences
A surprisingly small percentage of people who are unable to keep up on their bills ever resort to bankruptcy.  The majority of people who are suffering from harassing debt collectors will eventually cave in.  They’ll find the money, somewhere.  Many of them will (please forgive the cliché) rob Peter to pay Paul.
This is unfortunate, because in many cases where someone is struggling to pay debt, they are already past the point where they are capable of ever paying back their debt.  But they will spend several months or even years funneling money from one place to another, trying to keep up on bills, before reaching the inevitable conclusion that they must file bankruptcy.  By then, they’ve squandered thousands of dollars on debt that could have been discharged if they had sought professional advice sooner.
The Solution
Although bankruptcy is seen by many as a choice of last resort, if you are struggling with debt, you should at least consider consulting with an experienced bankruptcy attorney to determine what your rights and options are before you end up throwing more good money after bad.
People file for bankruptcy – ultimately – for the benefit of a discharge.  Meaning that debts get wiped out, and these debt collection agencies can never again call you to try to collect on them.
But even before you get your discharge, there are benefits.  For example, once your bankruptcy case is filed, most debtors receive the benefit of an automatic stay – a temporary injunction that prohibits your creditors and debt collectors from certain collection actions (including harassing phone calls, collection letters, lawsuits, wage garnishments, bank levies, utility shut-offs, repossessions, and foreclosures) while the bankruptcy court sorts through your petition and schedules to determine that bankruptcy relief is appropriate and justified.  In most cases, the automatic stay continues uninterrupted until you receive your discharge, offering a seamless transition and offering protection against most collection efforts from the moment your case is filed.
Even before you file for bankruptcy, the mere act of retaining an attorney can provide certain benefits.  Under the FDCPA, third party collection agencies cannot continue to call and harass you.  Although other legal remedies may still be available to them before your bankruptcy case is filed, most debt collection agencies will back off entirely because it may no longer be worth it to them to pursue you for the debt.
For example, a collection agency could file a lawsuit against you before you file for bankruptcy.  But, for all they know, you will file your bankruptcy case the day after they file a lawsuit in court.  In that case, they’ve wasted time and money, court filing fees and likely attorney fees, on a lawsuit that isn’t going to go anywhere.  (Bankruptcy prevents collection lawsuits from being filed and terminates any that are already in progress.)
For the same reason, original creditors (who are not covered by the FDCPA) are also likely to leave you alone once they confirm that you have retained an attorney to file for bankruptcy.
If paying back your debt is still very important to you, there are other options that we can help you with, including Chapter 13, Chapter 128, and budget counseling.

Deadline to Stop Foreclosure

In states that have a short redemption period – like Michigan – one would expect that last-minute bankruptcy filings to prevent foreclosure would be common.  I have consistently been surprised, however, at how many people wait to file at the last minute in a state like Wisconsin, where the typical redemption period is at least six months.
And mind you – that’s just the redemption period.  It doesn’t count the 2-3 months of missed mortgage payments before a foreclosure case is ever filed.  It doesn’t count the 4-6 weeks before there is a judgment of foreclosure.  It also assumes a normal foreclosure timeline.  Many foreclosure cases – almost inexplicably – drag on for many more months or even years longer than they should.  I’ve seen cases held open for nearly 4 years.
Some homeowners look at bankruptcy as a sort of “last resort” option and they spend the bulk of their redemption period legitimately looking for non-bankruptcy options to save their home.  (This is fine, by the way – but you should get your ducks lined up ahead of time.  In case you do need to file bankruptcy to stop the foreclosure, you will want to have consulted with an attorney long before the last minute so that a case can be prepared properly.)  However, over my many years of practice, I’ve gathered that the vast majority of homeowners file at the last minute because they have spent their redemption period with their heads in the sand – hoping that the problem would resolve itself.  (Hint for those of you considering that strategy: it doesn’t work.)

Side Note: Certain decisions simply should not be rushed into.  If you need to file bankruptcy to save your home from foreclosure, I personally recommend that you give your attorney at least six weeks of lead time.  Why?  Certainly not because it takes that long to prepare a case.  However, there is a difference between filing a case and filing a case properly.  If you actually want your case to go smoothly and succeed, you’re going to want your case filed properly.  It doesn’t take six weeks to draft schedules or any of the other things involved in preparing a case.  But you should give your attorney six weeks for two reasons.  First – so your attorney isn’t rushed.  So your attorney has plenty of time to review your case, to make sure that all T’s are crossed and I’s are dotted, to make sure that all supporting documents have been assembled, etc., etc., etc.  The second reason is actually for your benefit.  Rushing into Chapter 13 is a bad idea.  It’s a 3-5 year commitment that requires adherence to a disciplined budget.  Giving at least six weeks’ notice will give you ample time to prepare yourself for what you’re about to commit to.

All right – all that preaching aside – let’s hit the actual point of this article.  When must a bankruptcy case be filed to stop foreclosure?
As is often the case, we start with the statutes. 11 U.S.C. § 1322(c)(1) guides us here.

Notwithstanding subsection (b)(2) and applicable nonbankruptcy law — a default with respect to, or that gave rise to, a lien on the debtor’s principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.

Read plainly and literally, it would seem that you must file the bankruptcy case before the sheriff’s auction.  However, Judge Kelley ruled that debtors could redeem a property from foreclosure up until the date the sale is confirmed by the state court (this is typically about 2 weeks after the sheriff’s auction).

Debtor defaulted on the monthly payments of his home mortgage with the creditor. The creditor commenced a foreclosure action and a court entered a judgment of foreclosure. After a six-month redemption period, the creditor purchased the property at a sheriff’s sale. Before the foreclosure sale could be confirmed by the state court, debtor filed a Chapter 13 petition. In his Chapter 13 plan, debtor proposed to resume making regular monthly payments to the creditor on the mortgage, and to pay the pre-petition arrearage through the Chapter 13 trustee. The creditor objected on the ground that debtor could no longer use Chapter 13 to cure the mortgage default and reinstate the mortgage. In overruling creditor’s objection, the court held that under state law debtors retained the right to redeem property at any time prior to sale, and that the sale occurred upon confirmation by the court. The court held that, because debtor could redeem after the foreclosure sale and before confirmation, debtor could cure his defaults utilizing 11 U.S.C.S. § 1322(c)(1).

In re Wescott, 309 B.R. 308 (Bankr. E.D. Wis. 2004)

So, the technical answer (unless Wescott should ever some day be challenged and over-ruled) is that a homeowner can have until the day the sheriff’s sale is confirmed to save their home in bankruptcy.However, I advise my clients to treat the sheriff’s sale itself as the deadline.  If we’re going to run it to the wire, I prefer to know that we still have about two more weeks to file the case if there is critical information still missing by the time of the sheriff’s sale.
It is important to note that Judge Kelley arrived at this decision after a careful analysis of Wisconsin state foreclosure laws, and in comparing them to Illinois state foreclosure laws (the mortgage lender had cited Colon v. Option One Mortg. Corp., 319 F.3d 912 (7th Cir. Ill. 2003), which had a different result).  Therefore, this decision applies only to Wisconsin cases.  If you are a homeowner in another state – consult with an attorney licensed in your state to determine what the rules are in your jurisdiction.

What you need to know about wage garnishments.

Filing for bankruptcy is an excellent way to stop wage garnishments.  The automatic stay immediately stops all collection actions, and the discharge wipes out the judgment debt.
However, as any quality bankruptcy attorney will tell you, filing for bankruptcy requires some time and work.  If you want you case done properly and without errors, you should expect that the process will take a couple of weeks, minimum.  In other cases, people need to deliberately wait to file their case for any number of reasons.
But you’re facing a wage garnishment NOW.  What can you do to avoid wage garnishment until your bankruptcy case is ready to be filed?
Let’s start out with some basic facts that you should know about wage garnishment.  Note: everything in this post is specific to Wisconsin law.  If you have been sued in another state, consult with an attorney who practices in that state.
  • The maximum amount that can be garnished is 20% if your “disposable earnings” (your gross wages, minus amounts taken out for federal tax, state tax, and social security taxes, but does not include other deductions such as insurance or union dues).  If you have child support deducted from your paycheck, then the combined amount of child support deductions and the wage garnishment can be no greater than 25% of your disposable earnings.
  • Garnishments typically last for 13 weeks.  They can end sooner if the underlying debt is fully paid.  They can be extended for a longer period either by stipulation, or by a new application that takes effect after the first 13 week period is up.  Also, public employees can be garnished until the debt is paid off.
  • You can only be garnished by one general creditor at a time (does not include tax levies, federal student loan levies, and child support).
  • You cannot be fired solely because of a wage garnishment (though most employment in the United States is “at-will” employment, which means an employer can fire you for any reason or no reason at all, so long as it is not solely for a discriminatory reason).  There is also an exception to this rule if you have a collective bargaining agreement that permits termination under such circumstances.
  • You may dispute a wage garnishment.  To do so, click here for the form.  Send a copy to the Clerk of Courts, the creditor and/or the creditor’s attorney, and your employer.  Your employer must not garnish you if you file one of these responses, unless and until the court overrules your application and directs the employer to proceed with the garnishment.  Your employer must wait at least 5 days after your pay date before sending garnished funds to the creditor, to allow time for you to file a dispute.
  • Most creditors cannot touch certain types of income (such as social security).  However, if you owe debt to the government, social security and other types of income can become fair game.

You may be exempt from wage garnishment.  If you are, make sure that you file a response with the court and copy your employer.  Your employer is not required to investigate on his own to determine whether or not you are garnishment-proof.  All exceptions (except proof of bankruptcy filing or discharge) require a judicial determination.
You may be garnishment-proof if:
  • You have filed bankruptcy and the automatic stay is still pending.  (In pending Chapter 13s, only until property of the estate revests back to you.)
  • You have received a bankruptcy discharge, and the debt was incurred before your bankruptcy case was filed.
  • Your household income is below the federal poverty guidelines.
  • If your household income is above the federal poverty guidelines, but the garnishment would bring you below the guidelines, you can only be garnished to the extent that it brings you down to the poverty guidelines.
  • Currently, or in the past six months, you have received – or determined to be eligible for – public assistance (food stamps, W2, SSI, etc.).