Wage deduction, when someone gets an order to take money from your paycheck sometimes referred to as wage garnishment, is a very aggressive tactic used by creditors in a last-ditch effort to recover an overdue loan. It can be an incredibly disruptive force in a person's life.
The use of wage deduction by creditors, part of a history of other unsavory tactics, prompted legislators to create certain protections for people in debt. Personal bankruptcy and the automatic stay are expressly designed to stop wage garnishment and other types of harassing behaviors from creditors.
To learn more about halting wage deduction through bankruptcy and your state's exemptions and laws, fill out the form below for a free, no-obligation consultation with a local bankruptcy lawyer.
In order for a creditor to deduct wages from your paychecks or bank account, it must first obtain a court order allowing it to do so. In addition, the creditor can only take a specific percentage of your wages, though this can still reach as high as 25 percent of your checks. Some state laws limit this amount even further.
So, there are some obstacles a creditor must overcome before it is allowed to deduct your wages. Nevertheless, wage garnishment happens quite frequently. This is when bankruptcy comes into play.
By filing for bankruptcy, you immediately receive the benefit of the automatic stay, which is a court order that temporarily prevents creditors from:
Thus, during the bankruptcy process, your creditors will likely be prevented from garnishing, or deducting, your wages. The automatic stay, however, only lasts through the bankruptcy process. If your case is dismissed our you withdraw your filing, creditors could resume deducting your wages.
The more permanent form of wage deduction protection offered by bankruptcy is the ability to discharge your debts. There are two ways this might occur.
In Chapter 7 bankruptcy, you may be able to eliminate some or all of your unsecured debts, thereby stopping your creditors from taking your wages. Chapter 7 is designed for people with limited assets who want relatively quick debt relief.
Through Chapter 13 bankruptcy, you will create a reorganized debt payment plan and be given extra time to fulfill your debt obligations. Chapter 13 bankruptcy is often a better remedy for wage deduction for people who have steady sources of income.
In addition to stopping wage deduction, bankruptcy may also provide other benefits. In Chapter 7 bankruptcy, for example, you may be able to discharge medical debt, credit card debt, utility bills, and payday loans.
Further, Chapter 13 bankruptcy may allow you to better maintain your current lifestyle while going through the bankruptcy process. In fact, people often file for Chapter 13 in order to:
So, bankruptcy attacks wage deduction in two ways. First, through the automatic stay, bankruptcy puts an immediate halt to wage deductions. Second, by helping you eliminate your debt, bankruptcy may also end your creditors' legal right to collect on any debts, thus preventing future wage deductions.