Wage Garnishment and Bankruptcy
In order to answer the question,” Does bankruptcy stop wage garnishment?” the simple answer is “yes.” However, it is important to note that in some instances, the stopping of the garnishment may be short-lived. Upon the filing of a bankruptcy petition, there is a provision of the bankruptcy code that goes into affect known as the “Automatic Stay.” The Automatic Stay is a court order that protects the debtor from all further collection activity, including wage garnishment.
That being said, the affect of bankruptcy on wage garnishment is truly dependant upon what the garnishment is for. While the Automatic Stay does protect the debtor initially from wage garnishment, such creditors as the Internal Revenue Service, child support recipients, and student loan creditors may file a motion with the court to have the stay lifted in order to continue with the garnishment. If and when approved, such creditors will be allowed to resume the garnishment.
IRS Wage Garnishment and Bankruptcy
While the filing of a bankruptcy petition will initially stop an IRS wage garnishment, it does not automatically mean the debt will be eliminated. The type of IRS debt, whether or not certain conditions are applicable, and the type of bankruptcy filed are determining factors. Typically, with a Chapter 7 bankruptcy, income tax debts may be discharged (eliminated). Taxes such as payroll taxes and trust fund taxes are not dischargeable in bankruptcy. However, the benefit to filing bankruptcy when large tax debts are owed is that interest and other fees will stop accruing.
It is important that debtors immediately notify their employers upon the filing of their bankruptcy petition. In addition, notification to those creditors who may be garnishing their wages should be sent right away as well. If, after the filing of a bankruptcy petition, a debtor’s wages are still garnished and said wages were properly exempted, the debtor may be entitled to a return of said monies. If the wages are not exempt, the bankruptcy trustee may file a motion to have them turned over to the estate for the benefit of all unsecured creditors.
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