Does Declaring Bankruptcy Stop Wage Garnishment?

TRI Writer • December 23, 2019

Debt is insidious. It creeps up on you, and no matter how hard you try to escape, it seems to gain strength through the struggle. Some are tempted to ignore the situation until it goes away, until they have a better financial situation, until they can find an answer, etc. However, if debt is ignored long enough, a creditor can seek a court order forcing your employer to withhold a portion of your pay to apply toward the debt. When a creditor obtains this type of court order, and your employer is forced to withhold your pay, it is called wage garnishment.

When a worker’s wages are garnished, they frequently consider turning to bankruptcy, hoping for a solution, hoping to stop the wage garnishment using the protections of bankruptcy. A garnishment takes 25% of after tax income, less a small exemption for each dependant.  This cripples most Debtor’s ability to make ends meet.

Can Declaring Bankruptcy Help Stop Wage Garnishment?

7% of U.S. workers have their wages garnished.

The average non-garnished worker earns approximately 25% more annually than those with wage garnishment.

When you consider the statistics, it’s not surprising that individuals subject to wage garnishment are searching for a way to reorganize their debt or discharge their debt to stop the wage garnishment. For individuals in this situation, bankruptcy may provide a solution. Immediately upon filing a bankruptcy petition, the automatic stay goes into effect.

The automatic stay prevents all collection and foreclosure activities, including most wage garnishments. The automatic stay usually lasts until the case is closed or the debts are discharged, unless the debtor has multiple bankruptcy filings in one year. (If you have questions about how filing more than once in one year affects bankruptcy law, contact an experienced bankruptcy attorney as soon as possible).

When DOESN’T Bankruptcy Stop Wage Garnishments?

Some debts are not dischargeable through Chapter 7 bankruptcy. Some of the debts that fall into this category include child support payments, alimony, some tax debt/payments, and student loans. Declaring Chapter 7 bankruptcy does not change or delay any requirements to pay these types of debt. However, filing bankruptcy will nonetheless stop any wage garnishments in place due to nonpayment of any of these types of debt.

Chapter 13 Bankruptcy and Wage Garnishments:

Chapter 13 bankruptcy treats wage garnishment slightly different. The goal in a Chapter 13 bankruptcy is helping Debtors to regain control of their finances over a specific time period (3 to 5 years). Garnishments stop as long as the bankruptcy petitioner complies with their Chapter 13 repayment plan.

Bankruptcy can offer relief from debilitating wage garnishment, but it can also be complicated. Before making any final decisions about bankruptcy, get in touch with Kenneth C. Rannick P.C., Tennessee and Georgia bankruptcy attorney.

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Are you a Tennessee resident facing financial challenges and considering bankruptcy? If so, you may have heard about a relatively new option called Subchapter 5 bankruptcy. But what exactly is Subchapter 5 and how does it differ from traditional Chapter 11 bankruptcy? More importantly, what benefits does it offer to individuals and small businesses?  In this blog post, we will explore the world of Subchapter 5 bankruptcy and shed light on its advantages for Tennessee residents. Whether you're a struggling entrepreneur or an individual burdened by overwhelming debt, understanding the potential benefits of Subchapter 5 can help you make informed decisions about your financial future. What is Subchapter 5 Bankruptcy? Subchapter 5 is a relatively recent addition to the United States Bankruptcy Code, specifically designed to provide a streamlined and cost-effective bankruptcy process for small businesses and individuals. It was created as part of the Small Business Reorganization Act (SBRA) in 2019, with the aim of increasing accessibility to Chapter 11 bankruptcy relief. The Benefits of Subchapter 5 Bankruptcy Simplified Process: One of the key advantages of Subchapter 5 is its simplified and faster bankruptcy process. Unlike traditional Chapter 11 bankruptcy, which can be complex and costly, Subchapter 5 offers a more streamlined approach that is better suited for small businesses and individuals. Retention of Ownership: Under Subchapter 5, business owners have the opportunity to retain ownership and control of their company while developing a repayment plan. This allows for greater flexibility and the ability to restructure debts without losing ownership interests. Reduced Plan Requirements: Subchapter 5 eliminates certain stringent plan requirements that are typically associated with traditional Chapter 11 bankruptcy. This simplification of the plan process makes it more accessible to small businesses and individuals. Debt Repayment Plan: Subchapter 5 allows for the development of a debt repayment plan based on the individual's or small business's disposable income. This plan spans over three to five years, making it more manageable and achievable for debtors. Creditor-Friendly Approach: Subchapter 5 encourages creditor participation and collaboration, promoting consensual resolutions and a more amicable environment. This can lead to increased cooperation, reduced litigation costs, and ultimately, a more successful restructuring process. Subchapter 5 vs. Chapter 11 Bankruptcy: Understanding the Difference While both Subchapter 5 bankruptcy and traditional Chapter 11 bankruptcy share some similarities, there are significant differences between the two. The primary distinction lies in the complexity, cost, and requirements associated with each option. Subchapter 5 offers a more simplified and accessible bankruptcy process specifically tailored to the needs of small businesses and individuals, while Chapter 11 is better suited for larger businesses with more complex financial structures. If you're a Tennessee resident grappling with financial difficulties, Subchapter 5 bankruptcy may provide a viable solution. Its streamlined process, reduced plan requirements, and debtor-friendly approach make it an attractive option for small businesses and individuals seeking relief from overwhelming debt. Before making any decisions, it's essential to consult with a qualified bankruptcy attorney who can guide you through the process and help determine the best course of action for your specific situation. Remember, bankruptcy is not a one-size-fits-all solution, and the outcome will depend on various factors. However, understanding the potential benefits of Subchapter 5 bankruptcy can empower you to make informed decisions about your financial future. At Kenneth C. Rannick, P.C., we specialize in bankruptcy law and can provide the guidance and support you need during challenging times. Contact us today to schedule a consultation and explore your options for a fresh start. Take control of your financial future with Subchapter 5 bankruptcy. Let us help you navigate the path to a brighter tomorrow.
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