What can creditors do to me if I’m on limited income?

Notwithstanding bankruptcy protections, some people – by virtue of their sources of income and the types of debts they owe – are protected from invasive debt collections.
Social security, unemployment, and other forms of (non-wage) government income cannot be garnished except by the government itself.
If you are receiving public assistance in Wisconsin (e.g. food stamps, BadgerCare, etc.), your wages cannot be garnished by creditors, nor can they be garnished for the six months after your benefits end.
Tax refunds generally can only be seized by government agencies to offset various types of government debts.

Don’t Ignore the Garnishment Answer

You’ve been sued.
At some point during the lawsuit, you receive a form that looks something like this…
But instead of filling it out and returning it, you toss it into the garbage can.
Your wages are garnished.  Thousands of dollars are withheld and used to pay your debt.
Several months later, you finally meet with a bankruptcy attorney.  You tell your attorney that you’ve been receiving public assistance in the form of food stamps.  You’re dismayed to find out that your wages were exempt from garnishment and that you would not have lost all that money if only you had filled out the financial disclosure form.
DON’T THROW THESE THINGS AWAY.  Sticking your head in the sand and hoping your problems will go away on their own will only make problems worse.
Seek professional guidance.  Call today.

Why it’s wise to retain a bankruptcy attorney BEFORE a creditor files a lawsuit against you.

Most of the time, people are not in a particularly good mood when they meet with an attorney.  Usually, something bad has happened to the person that prompted them to speak to an attorney.  Bankruptcy clients are no exception.  Debt collectors are hounding them 20 times a day…  A lawsuit has been filed against them…  Their wages are being garnished…  Their tax refunds have been intercepted…  Or they’re facing a foreclosure…
The things is – none of these events occur out of the blue.  They’re all predictable.  Debt collectors don’t hound you and lawsuits aren’t filed until after you have begun to miss payments.  Wages don’t get garnished and homes don’t get foreclosed until after a lawsuit has been filed.
What I want to talk about today is what some of the benefits can be of hiring a bankruptcy attorney before a lawsuit is filed against you.  Notice – I didn’t say file a bankruptcy case.  There can be benefits to merely having an attorney retained for bankruptcy.
Let’s start with the good news.  Most civil claims can be discharged in bankruptcy, even if a court has entered judgment against you.  The bankruptcy court discharge order trumps a civil court judgment order.  So, there’s no such thing as being “too late” in that respect.
Also, if your wages are being garnished – filing bankruptcy can stop the garnishment, and it may be possible to recover a portion of the garnished wages once the bankruptcy case has been filed.  I discussed that last month.
But most people would prefer to not have their wages garnished at all.  Most people don’t want their employers to be aware of their financial struggles.  How can this be avoided?  Oftentimes, simply retaining an attorney for bankruptcy will do the trick.
Technically, any creditor or debt collector can file a lawsuit against you before a bankruptcy case is filed.  The question is – would they?  Well, if they have already been able to confirm that you have retained an attorney, then it is unlikely that they would waste their time or money.  Remember, to file a lawsuit, they have to pay court filing fees, and they usually have to pay an attorney to file the complaint.  They don’t necessarily know exactly when you’re going to file bankruptcy.  For all they know – they could file a lawsuit today and you will file bankruptcy tomorrow.  In which case, their lawsuit is moot and they’ve just wasted all of that money.
So – most creditors back off simply by confirming that you have indeed retained a bankruptcy attorney.
If you wait until after a lawsuit has been filed (meaning that the creditor has already invested their time and money in bringing a lawsuit) before you hire an attorney, then they have very little incentive to suspend litigation or not pursue a garnishment of your wages.
In other words – don’t wait until things get to this level.  If you are struggling to pay your bills, talk to an attorney now.  Take advantage of some of the less formal protections of pre-filing procedures in bankruptcy.

How having your wages garnished could lead to a free bankruptcy.

A lawsuit has been filed against you.  Your wages have been garnished.  You decide that you can’t stay ahead anymore, and you decide to file for bankruptcy.
If the amount of your wages that have been garnished in the 90 days prior to filing bankruptcy exceeds $600, then it constitutes a preference under 11 U.S.C. § 547(b).  If the trustee lays no claim to the funds, the whole amount garnished in the 90 days prior to filing bankruptcy can be recovered under § 522(h).
Okay, admittedly, this isn’t a ‘free bankruptcy’ so much as it is a reimbursement (and likely only a partial reimbursement, depending on the recoverable amount relative to the costs to file bankruptcy).  Also, the money being reimbursed was your wages anyway, but since there was a legal garnishment, most people are simply appreciative to get it back.
But what about a real free bankruptcy?  Again, it would be a reimbursement, but there are ways to make creditors pay for your bankruptcy out of their funds (not yours) if they knowingly violate the automatic stay.  You are entitled to recover actual damages (for example, any wages actually garnished after your case was filed) no matter what.  But if you can prove that the creditor knowingly violated the stay, punitive damages can be awarded, too, and that can potentially reimburse you in full for the cost of bankruptcy.

Filing a Case Properly

This article expands on a topic I mentioned briefly last week – the difference between filing a case and filing a proper case.  The difference between the two is often the difference between a painless (if not boring) bureaucratic process and a painful headache and nightmare.
I would estimate that 90% of the nightmare cases I have witnessed have fallen into one of three categories.  (1)  The debtor did not have an attorney.  (2)  The debtor hired an attorney that merely dabbles in bankruptcy from time to time.  (3)  The case was rush-filed as an emergency or “skeletal” petition.
While there is no law that requires someone to hire an attorney to file for bankruptcy (also known as proceeding pro se), it is highly inadvisable to do so.  Even in the simplest of Chapter 7 cases, there is more to bankruptcy than just filling out a few forms.
Why do people file without an attorney?  Some genuinely cannot afford to hire an attorney, but those people are often un-collectible and don’t really need to file for bankruptcy (their wages are too low to be garnished or they qualify for state aid that protects them from most detrimental collection actions).  Most, however, can afford to pay for an attorney – they just don’t want to.  “I don’t like lawyers.” or “I don’t want to pay money to a lawyer.”
Bankruptcy attorneys should be seen as an investment.  Relative to the amount of debt that a typical person can and will have discharged in bankruptcy, the cost of an attorney is a pittance.  And attorneys do a lot more than just fill out forms.
An experienced and competent bankruptcy attorney will help in exemption planning (arranging your exemptions in such a manner to maximize the amount of property that can be protected) and means testing (correctly determining how much disposable income you have to pay unsecured creditors and maximizing your allowed deductions).  Experienced bankruptcy attorneys will also know the statutes that are relevant to your case, stay on top of relevant case law, know the federal and local rules, know the deadlines you have to watch out for, know documents that need to go to the trustee, be able to identify the issues that could cause problems for your bankruptcy case, and know how to avoid or mitigate those issues.
Filing a Chapter 13 case pro se is even more difficult.  You’ll need to be able to review claims, draft a confirmable plan, and – sometime over the course of 3-5 years – likely have to respond to objections, motions to dismiss, or motions for relief, or amend your plan.  Motions work is very common in Chapter 13, and you have to be aware of the notice requirements to creditors and other interested parties.
Bankruptcy is a very complicated field of law – moreso than it might appear on its face.  There is so much more to be aware of than what you will ever glean from the official bankruptcy forms.  When you hire an attorney, you are paying for his experience and expertise.  Yes, we can make bankruptcy appear to be extremely easy.  That’s not because bankruptcy is easy.  It’s because we have spent our careers implementing procedures and policies into our law practices designed to make our cases flow smooth and fluid.  We know that our clients don’t want to undergo a nightmare, so we use our training and our experience to lessen the hassle for our clients.
Don’t count on filing a case pro se and then hiring an attorney later if and when it becomes too much to handle, either.  Most attorneys I know (including myself) won’t get involved in a case they didn’t file.  These cases get too sticky, between compensation, deadlines, and the requirements of the attorney once he or she enters an appearance.
That explanation covers people who file without an attorney or people who hire an attorney that is inexperienced in bankruptcy.  What about the emergency / skeletal petitions?  Well – keeping in mind what I said – that bankruptcy is more than just filling out a bunch of forms – in order for an attorney to perform due diligence and prepare a quality case, it is best if you do not impose on an attorney to rush file a case.  If you know that you’re in financial trouble – talk to an attorney now.  Don’t wait until the last minute.  Give your lawyer plenty of time (I recommend six weeks) to do the case right.  You’ll be glad you did.

Is Bankruptcy the Best Option for Me?

Can I file bankruptcy?

Should I file bankruptcy?
Is bankruptcy right for me?

My first job out of law school was for a highly profit-driven law firm that believed that everyone could benefit from bankruptcy in some way, and that there was no excuse for an attorney to not get a prospective client to retain our services.
I won’t say who that law firm is, but you can identify firms like these pretty easily.  Many of them will have a short survey posted on their website that asks you a few questions to determine if you should file for bankruptcy.  The survey is coded and rigged in such a way that no matter how you answer the survey (or if you answer ‘yes’ to even one question, and the questions are designed that 99% of people would), then the result would be a profound warning that you needed to file for bankruptcy right away.
That law firm I used to work for – and other firms like it – are absolutely wrong.  Bankruptcy is not for everyone.  Admittedly, it is true that there are few people in the world who – if they filed for bankruptcy – would not get any benefit from it.  But those people are out there.  Sometimes they land in my office.  If someone would not benefit from bankruptcy – I will tell them, even though it costs me business.  I, as all attorneys do, have a duty and ethical obligation to look out for my clients’ (and prospective clients’) best interests.
So… rather than post a gimmicky survey, I’m going to walk you through some of the factors you should consider if you’re thinking about bankruptcy.  It won’t be as easy and fast to go through as a six question survey, but I feel that you will have a much clearer idea of what you need to do after reading this article.
Of course, since I can’t know the specifics of your financial circumstances, this article paints with very broad brush strokes.  There is no substitute for getting a consultation from an experienced bankruptcy attorney who can analyze your particular situation.  Most attorneys – including myself – offer free initial consultations.  There is no risk or commitment.  Just an opportunity for you to arm yourself with information and options.
Fundamentally, what is bankruptcy?
Declaring bankruptcy, in its most fundamental sense, is nothing more than asserting that you cannot afford to pay all of your debt obligations as they become contractually due.
Put another way, if your income is X, your ordinary living expenses are Y, and minimum payments on your debts is Z, then X – Y < Z.  The shortfall could just be a few dollars a month, or a few thousand.  Either way, the equation is unbalanced.  Ideally, you want it to look like either X – Y = Z or X – Y > Z.
But I’m not poor…
Bankruptcy is not just for poor people living off of unemployment benefits or food stamps.  In fact, many people on public benefits would benefit the least from bankruptcy protection – essentially because they have little or nothing to lose.  In Wisconsin, those receiving public assistance are protected from having what little wages they have from being garnished.
People have a tendency to look at key items of their financial circumstances in isolation.  “I make $100,000 per year, therefore, bankruptcy isn’t for me.”  “I only have $10,000 in debt, therefore, bankruptcy isn’t for me.”  Well, if you’re making $100k a year and only have $10k in debt, I might be inclined to agree.  But if you’re making $100k a year and trying to pay back $500k in taxes – then you might need some help.  And a single mother raising two kids on $30k a year might get a lot of benefit from bankruptcy even if her debt is only $10k.
It’s not just about your debt or your income, but your debt-to-income ratio.
But I have excellent credit…
Have you pulled your credit report and score?  Recently?  Most people who tell me this haven’t.  They think their credit is excellent because they have never missed a payment.  But your credit score is much more than just a record of your payment history.  Your credit score is affected by numerous factors, including your income, your assets, debt-to-income ratio, minimum monthly payments, number of active accounts, types of credit accounts, your indebtedness relative to your available credit, residential stability, occupational stability, length of credit history, and credit inquiries.
All we’re saying is – if you’re reading this article and you haven’t pulled your credit recently, it might not be as high as you think.
That being said, impact on your credit score is a valid concern.  Bankruptcy does negatively impact your credit – there’s no denying that.  If there is a feasible way to get out of debt without bankruptcy, it is something worth considering.
But bankruptcy isn’t a permanent black mark against your credit, either.  I tell my clients to think of bankruptcy as a reset button on a video game.  You start with a clean slate – just like when you turned 18.  No credit.  You start over and build a new history.  If you happen to have a preexisting debt that will survive the bankruptcy (mortgage, car loan, student loan, etc.), that will help you rebuild even faster.
I’m not in trouble… yet.
If you think you’re headed down a path where bad things are going to happen, talk to an attorney now.  Don’t wait until disaster strikes.
  • Has a creditor filed a lawsuit against you?  They may be looking to garnish your wages.  Why wait until after your wages have started to be garnished before speaking to an attorney?
  • Have you not paid your utility bills all winter?  Your services will likely be disconnected on or after April 15.  Why wait until April 14 to do something about it?
  • Are you behind on your car payment?  In Wisconsin, it doesn’t take long for a creditor to repossess a car.  If they do, you have a very short window (and limited possibilities) to get it back.
  • Are you falling behind on your mortgage payment?  Foreclosure takes a bit longer in Wisconsin, but the longer you wait, the more expensive it could be to stop the foreclosure action.  Don’t gamble with your home by waiting until the eve of the Sheriff’s Sale to speak to an attorney.

It doesn’t necessarily have to take a long time to file a bankruptcy case.  But to do it properly, you should plan on meeting with an attorney several weeks (if not months) before you need to file for bankruptcy.  Why so long?
Chances are that you are not your attorney’s only client.  Your attorney will need time to prepare a proper petition for you, to review all of the relevant documents and information you provide, and to advise you accordingly.  If you drop a case in your attorney’s lap and expect him to drop everything and file a case for you in 24 hours – you can expect the quality to suffer, and you can expect problems.  In fact, I would urge you to avoid any attorney willing to file a case that quickly.
Furthermore, you are going to have certain obligations and responsibilities in bankruptcy.  You’re going to want time to digest these, and make sure that you’re making the right decision before you commit to filing your bankruptcy petition.
Okay, I want to file bankruptcy.  Here’s some information.  Get it done for me.
Bankruptcy is a privilege, not an absolute right.  And it’s a privilege that usually confers a tremendous financial benefit.  In exchange for that benefit, the bankruptcy court is going to have some expectations of you.  They expect a full disclosure of your income, assets, and debts – to determine what, if anything, you can reasonably be expected to pay on your debts.  They also expect you to conduct yourself in a manner that doesn’t unfairly and unjustly impact your creditors (meaning not racking up a bunch of debt right before you file your case, not paying certain creditors at the expense of others, and not selling or giving away valuable assets).
Your attorney’s job – my job – is to help guide you through this intensely bureaucratic process; to advise you to avoid legal pitfalls; and to make sure that you follow the laws and procedures properly.  But that doesn’t mean you can sit back and not take an active and serious role in your own case.  If you cannot bring yourself to disclose information or to follow explicit instructions and advice from your attorney, then you may want to seek some other form of debt relief with less rigid expectations.

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.).

Can bankruptcy stop a wage garnishment?

If your wages are being garnished for a judgment entered against you on behalf of a creditor that you owe, yes, filing for bankruptcy will prevent that. If the garnishment has not begun before your case is filed, then the bankruptcy will prevent the garnishment from beginning at all; if the garnishment starts before your case is filed, then the garnishment will stop immediately after your case is filed. To ensure that the proper parties are notified to stop the garnishment in a timely manner, you should give your attorney contact information (such as an e-mail or fax number) for your employer’s payroll department, or alternatively, obtain a copy of the notice of filing from your attorney and present it to your payroll department yourself.
There are a few exceptions to all of this. Bankruptcy will not stop withholdings for income taxes nor child support. If you do not receive a discharge for any reason, the garnishment will only be suspended for so long as the stay applies in your pending bankruptcy case, after which time, the creditor can reapply for the garnishment to resume. Finally, if you have filed multiple bankruptcy petitions within 12 months, the stay might only be temporary or it might not kick in at all unless your attorney files a successful motion with the court to extend or implement the stay.