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What Is Wage Garnishment and How Can Bankruptcy Help?

If you owe money, it may come as a surprise to find out that a creditor can garnish your wages, leaving you to take home a smaller paycheck.  When debt mounts up and creditors become serious about collection efforts, they sometimes resort to garnishment.

Wage garnishment is a court order that allows a creditor to take a percentage of your income for payments owed.  The employer receives the court order and must relinquish the garnished amount to the creditor.  The percentage can vary depending on state law, but it typically ranges from 25-35% of income each pay period.

It’s also possible for a creditor who obtains a judgment to garnish a bank account.  The order gets sent to the bank and the bank freezes the account.

Wage garnishment for child support and alimony are treated differently under the law and are not subject to the same limits as other creditors.

Laws exist at the federal, state, and local levels to govern wage garnishment.  So, depending on where you live, aspects of garnishment may vary somewhat.  However, according to the Department of Labor (http://www.dol.gov/compliance/guide/garnish.htm#Relation), when local, state, or federal wage garnishment laws are different, employers observe the law that results in a smaller garnishment.

What can you do to fight garnishment?

Filing bankruptcy triggers an automatic stay, which is a court order that stops garnishment.  Whether the creditor must return funds garnished before the filing varies by jurisdiction, but future garnishments must stop.  Bankruptcy law then governs whether and how much any particular creditor would get paid.

Some federal benefits are exempt from garnishment, such as Social Security benefits and Supplemental Income Insurance.  Disability insurance, certain pensions, and life insurance are generally benefits that are also exempt.  Under state laws, state benefits may also be exempt.

If you receive notice for wage garnishment, contacting a bankruptcy lawyer can help you figure out the best way to deal with it.

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