Both Chapter 7 and Chapter 13 bankruptcy clients in the Denver area can face wage garnishments from creditors. These wage garnishments are often the “last straw” for debtors, leading them to the Bankruptcy Court for relief and protection from their creditors. I have never had a client who is excited about the prospect of bankruptcy. Often however, filing for bankruptcy is necessary to prevent a garnishment, either of wages or bank account funds (in Colorado a seizure of your bank account funds is called an “attachment”).
Bankruptcy can help you maintain your ability to pay rent or the mortgage and feed your family. In this situation, a properly planned and filed bankruptcy becomes a necessity for many families.
Because of the automatic stay in bankruptcy, found at 11 U.S.C. 362 for both chapter 7 and chapter 13 cases, the wage garnishment a debtor is facing can be stopped, or even completely prevented, if the bankruptcy filing occurs before they take your wages.
Typically, creditors in Colorado can only garnish, or take, 25% of your gross paycheck. Creditors do have to get a judgement before they can garnish, and there are Colorado state law remedies to prevent a garnishment or address an improper garnishment. But with Colorado state law remedies, you have to go to state court to get your money back and that takes time and effort. Meanwhile, you are short 25% of your paycheck.
A step I regularly take in this instance is to contact the bankruptcy client’s payroll department, and the creditor, to be sure they have the notice of the bankruptcy filing as soon as possible. I often have this notice to the payroll department and the creditor within moments of filing the bankrutpcy case for my clients. Often times the payroll department at your employer may be confused about the law, or afraid to stop a garnishment because of a bankruptcy filing. In this instance the best practice is to contact the responsible person directly. This is something I do a number of times per month, because it is the best practice for my clients.
Assuming you qualify for bankruptcy, and have a need for a bankruptcy, you can take advantage of the automatic stay in bankruptcy by filing your case as quickly as possible. Because I have been filing cases for 20 years, I am often able to put together a bankruptcy case very quickly for my clients who are facing a wage garnishment in Colorado.
Unfortunately, the first notice you will get of a garnishment is after you get your paycheck and it is missing 25% of your wages. So if you have judgements against you, and you are unable to pay your debt it often makes sense to consult a qualified bankruptcy lawyer before this becomes an issue. In some cases you can get garnished funds back from the creditor, but this usually means the money is split up among your various creditors, not returned to you. Therefore, a wage garnishment is sunk money in Colorado, it is gone and cannot be recovered, and therefore you should seek out legal help before it happens.
Student loan creditors do not have to get a judgement before they can garnish your wages. Though, if they take this direct route, they can only garnish 15% of your wages. And the automatic stay will prevent or stop student loan garnishments as well and this protection will remain in place until your case is over. However, defaulting on a federal student loan involves an unreasonable amount of late fees and penalties. It makes sense to seek out the help of a bankruptcy lawyer if you are at the point where student loans are threatening to garnish your wages. There are a number of ways to address the situation which may save you money in the long run.