Wage Garnishment and Bankruptcy

What is garnishment?

Garnishment is a legal process where a third party that is holding your property has to turn it over if the garnishment procedure is followed.  That third party may be your employer.  It may be your bank.  The type of property most commonly garnished is your wages that are held by your employer.  This is more commonly referred to as a wage garnishment.  Money that is yours that is held by another, a bank, is another type of property that is commonly garnished.

Wage Garnishment

Suggestion for Writ of Garnishment, Jackson, Hinds County, Mississippi, 1998

How does wage garnishment work?

The maximum amount of wages that can be garnished from a paycheck are set by the Federal Wage Garnishment Law of the Consumer Credit Protection Act. Under this Act the most that may be garnished is the lesser of 25% of your disposable earnings or the amount your disposable earnings exceed 30 times the wages the federal minimum hourly wage.  With the federal minimum wage at 7.25 per hour then that comes to $217.50.  Your disposable earnings are what are left after your employer makes the legally required deductions for federal and state taxes, your share of state unemployment insurance and social security.

What this means is that if your disposable weekly earnings are less than $217.50 there can be no garnishment.   For weekly disposable income that is more than $217.50 and less than $290.00 the garnishment can be for the amount above $217.50.  In other words, if you are making $290.00 in disposable income per week, the garnishment can be in an amount of 72.50 per week.  If you make above $290.00 per week in disposable income the garnishment will like be 25%.  For example, if your disposable income is $400.00 per week, your garnishment will be 25% of this amount or $100.00.  This still leaves you well above the $217.50 minimum.  Regardless of what your disposable income is, if you are already living check to check like 76% of Americans, a wage garnishment will put a tremendous strain on the finances of you and your family.

About the only good news for Mississippians facing garnishment is that if a state has its own garnishment law that results in a smaller garnishment than the federal Act, that state law will be followed.   Mississippi law does have one provision that results in a smaller garnishment than the federal Act.  In Mississippi the garnishment of wages that are earned within the first 30 days after the writ of garnishment is served on the employer are protected and must be paid over to the employee.  Once the thirty days are up, wage garnishments are then limited only by the federal Wage Garnishment Law.

Alimony and child support garnishments limits are higher

Under the federal act, a garnishment for child support or alimony can be in an amount of up to 50% of disposable income if the employee is supporting another spouse or child.  If the employee is not supporting another spouse or child the garnishment can be as high as 60%.  If the garnishment is for support payments that are over 12 weeks behind an additional 5% can be tacked on to these numbers.

Student loan garnishments are at a different rate

Generally speaking, student loans are considered a non-tax debt owed to a federal agency.  Wage garnishments based of these loans is limited to 15% of your disposable earnings.

Can a credit card company garnish wages?

A credit card company must go to court before garnishing wages.  Under most circumstances in Mississippi, creditors can only garnish your wages or bank accounts after they have a judgment or other court decree against you.  A judgment is the final decision of a court resolving a dispute between parties.  A judgment is what is entered by a court at the end of a collection lawsuit.  When it comes to debts, a judgment is usually the written decision by the Court stating that the debt is owed, how much the debt is, and the amounts of any additional costs that the court may award such as attorney fees or filing fees to collect the debt.  Most like credit card companies and their debt collectors can garnish wages only after suing you and obtaining a judgment from the court.  Some debts, however, like IRS garnishments for tax debts and student loans in default can be garnished without the filing a lawsuit.

Multiple garnishments in Mississippi

Even if you have multiple creditors seeking to garnish your wages, they are limited to the applicable percentage limits set out in the Federal Wage Garnishment Act.  Therefore, if 25% is the applicable limit for garnishment under your particular circumstances, multiple creditors can only garnish up to this amount.  Typically multiple garnishments are paid in order set out in Mississippi procedural laws.

IRS wage garnishments follow another set of rules

The IRS is not limited by the Federal Wage Garnishment Act.  Instead, the IRS is only required to leave you an amount of income necessary for you to pay for your basic living expenses.  These amounts are figured using IRS tables that take into consideration the number of dependents you have.

For most types of debt, you can stop a wage garnishment with bankruptcy

Although there are exceptions, bankruptcy stops most garnishments.  Bankruptcy can be used to stop this process at almost any stage during the process leading up to the garnishment.  If you know you are about to be sued over a debt a bankruptcy can stop that process in its tracks.  You may know the suit is coming because the creditor let you know it was getting ready to sue you.  Before a suit is filed a debtor will often receive a letter from an attorney warning that suit is about to be filed if payment is not received within a certain time (i.e. thirty days).

If you file for bankruptcy after a lawsuit has been filed, the bankruptcy will stop the progress of the lawsuit and prevent a judgment from being entered against you.  This may also act to stop an award of costs and attorney fees against you, an action typically taken near the end of the lawsuit.  If the lawsuit progresses past this point, a judgment can be entered against you, placing a lien on all of your property in any county where the judgment is entered by the clerk of the court.  After the judgment is entered, the creditor can start the garnishment process to collect the monies that the judgment says you owe.

Garnishment in Mississippi is started by filing what is called a writ of garnishment with the court.  After the writ is issued and served on your employer garnishment will begin in thirty days.  Filing bankruptcy at this point in time will stop the garnishment before any money is withheld from your paycheck.  If you are at the point where money from your paycheck is already being garnished, you can put a stop to future garnishment by filing for bankruptcy protection.

Except in certain circumstances, bankruptcy will permanently stop the garnishment

For a garnishment that is related to an unsecured debt such as a credit card, the debt will be wiped out in bankruptcy and you will not ever have to worry about being garnished because of that particular debt again.  That debt no longer exists.  It has been discharged in bankruptcy, therefore, no one can garnish your wages based on it.

Certain types of bankruptcy will not stop garnishments for certain types of debt 

As mentioned earlier, there are some exceptions.  For example, domestic support obligations such as child support and alimony are not wiped out by bankruptcy of any type.  While the automatic stay protects against collection of property that is part of the bankruptcy estate for this type of debt, it does not prevent collection of property that is not part of the estate.  Thus, wages earned after the filing of a Chapter 7 bankruptcy would be subject to collection actions for a domestic support obligation.  Fortunately, a chapter 13 bankruptcy provides a way to stop this type of garnishment.  If a Chapter 13 bankruptcy is filed, wages earned over the term of the bankruptcy, either 3 years or 5 years, are considered to be part of the estate so collection actions for domestic support obligations are halted during this time.  During a Chapter 13, however, these obligations are still being paid off through the bankruptcy, but in an orderly way that is done under the terms of the court approved payment plan you submit.

IRS Garnishments

Garnishment related to tax debts will typically be stopped during a bankruptcy, but tax debts that do not meet certain criteria will not be discharged in bankruptcy.  For tax debts not discharged, the IRS and Mississippi Department of Revenue can restart their collection efforts as soon as the bankruptcy is complete.  A chapter 7 case will typically be over in several months and the taxing authorities can start again with their collection efforts then.  Depending on the amount of the debt, however, a Chapter 7 may have wiped out enough debts that you are now able to make arrangements to pay off the tax debt.  If not, a Chapter 13 can be used to pay the debt through the Chapter 13 plan over time.  During the 3 to 5 year period the Chapter 13 is in place, the tax authorities generally will not be able to garnish wages or other assets.

Student Loans

Student loans are another difficult debt that usually don’t go away in bankruptcy.  (You can read about student loans by clicking here).  Like the tax debts, collection of student loans is halted while the bankruptcy is ongoing.  For a chapter 7 this may be three to four months.  For a Chapter 13 it will be three or five years.

Garnishment of bank accounts or other property

As mentioned above, garnishment is not limited to paychecks it is applicable to other property you own, including, but not limited to, bank accounts.  It is common to see the garnishment of bank accounts in Mississippi.  This type of garnishment can be especially problematic with bank accounts that are held in the name of more than one person (joint accounts).  The creditor seeking to garnish does not care that it is a joint account and can garnish the entire balance in the account.  This can cause a lot of problems, both financially and personally.  If you are facing any of these issues an attorney can help you determine what your options are.

If you are dealing with a situation where your paycheck and other assets are about to be garnished, or are already being garnished we can help you figure out what your options are.  To schedule an initial free and confidential consultation to discuss your particular situation call 601-853-9966.