Practical Concerns Regarding Wage Garnishment and Bankruptcy

When an individual files a personal bankruptcy case, the bankruptcy automatic is triggered and most collection actions, including garnishments against the debtor, must immediately cease. Further creditor activity generally violates the automatic stay protection – even where the creditor is unaware of the bankruptcy filing!

While the automatic stay casts a long shadow of protection, it is not magical. As a practical matter, a garnishment will continue at least until notice of the bankruptcy filing is received. Therefore, it’s in the debtor’s best interest to send notice to all parties involved in the garnishment to ensure that money is not taken after the bankruptcy case is filed.

Creditor and Collecting Attorney

Faxing notice of the bankruptcy filing to the garnishing creditor and counsel is the first step in stopping a garnishment after a bankruptcy filing. While the clerk of the bankruptcy court will send out notices, it may be a few days until the creditor and attorney receive them.

Once a creditor is informed of a bankruptcy filing, it is the creditor’s responsibility to ensure that no further collection action takes place while the automatic stay is in effect. Most courts consider “doing nothing” to stop a wage garnishment is effectively a violation of the stay injunction and is penalized by contempt of court. The automatic stay is “intended to stop the snowballing,” and “all who have a part in the garnishment must take such positive action as necessary to give effect to the automatic stay. No action is unacceptable; no action is action to thwart the effectiveness of the automatic stay.” See In re Elder, 12 B.R. 491 (Bkrtcy.M.D.Ga. 1981).

State Court

In some jurisdictions, the debtor can obtain an order from the bankruptcy court quashing a state court wage garnishment order. Most state court judges are aware of the automatic stay’s effect on a wage garnishment order and will rescind the order without bankruptcy court direction. Unfortunately, most employers are not experts on the bankruptcy automatic stay. Failure to revoke or rescind the state court order may lead to confusion at the employer payroll office and delays in stopping a wage garnishment.

Sherriff

Garnishment orders must be enforced. In many areas that means the sheriff’s office is responsible for collecting garnished wages and turning the money over to the court for distribution to a judgment creditor. Consequently, it is always a good idea to send the law enforcement collector notice of the bankruptcy filing.

Employer

Wage garnishment orders direct an employer to withhold money from the debtor’s paycheck for a certain time period. The employer will continue to withhold wages in accordance with the state court order until either the end of the garnishment period or directed otherwise. It is imperative to send notice of the bankruptcy case filing to the debtor’s payroll office and direct it to stop all wage garnishment. As noted above, notice of the bankruptcy filing alone may not be enough to stop the wage garnishment.

Stopping a wage garnishment after a bankruptcy filing is generally a matter of notifying the appropriate parties. While it is ultimately the creditor’s responsibility, leaving the notice procedure to the garnishing creditor is often a risk, and could lead to delays in stopping the garnishment.