Chicago Bankrutpcy Question: Will filing a Chapter 13 stop a wage garnishment?

Chicago Bankruptcy Question of the Day: Will filing a Chapter 13 stop a wage garnishment?  In almost all cases, the answer to this question is yes.  Immediately upon filing for Chapter 13 bankruptcy protection in the Chicago area, two very important things happen. 

First, the automatic stay of bankruptcy is issued by the federal bankruptcy court pursuant to section 362 of the U.S. Bankruptcy Code.  The automatic stay of bankruptcy is basically an injunction against your creditors requiring them to stop any and all collection actions against you.  This includes stopping most wage garnishment orders, as these orders are issued by the state courts usually and the federal injunction supersedes the state court order. 

Second, all of your property becomes part of your bankruptcy estate pursuant to section 541 of the U.S. Bankruptcy Code.  This includes your ongoing wages, which are now protected.  One of the key elements of a Chapter 13 bankruptcy is that you are proposing to use your future income to repay some or all of your debts back in good faith while under the protection of the bankruptcy courts.  This would not be much help if creditors were still allowed to garnish your wages, so the bankruptcy code prohibits such actions. 

In order to effectively stop a wage garnishment immediately upon filing, notice is the most important factor.  When done properly by an experienced Chapter 13 bankruptcy lawyer, notice of your bankruptcy filing will be faxed to your payroll department, so that they know to stop the garnishment, the creditor, so that they know why the garnishment stopped, and the attorney for the creditor, so that they do not attempt to pursue further action. 

There are three common scenarios where a wage garnishment is not effectively stopped upon the filing of the Chapter 13 bankruptcy.  The most common is a garnishment for current domestic support obligations; child support, alimony, maintenance, spousal support, etc.  These deductions are specifically excepted from the bankruptcy code.  A garnishment for past due domestic support obligations can be stopped so long as the debt is properly treated in the Chapter 13 plan of reorganization.  Also common is where the automatic stay does not go into effect upon filing.  This occurs when the filer has had two or more Chapter 13 cases dismissed within the past one year.  In those cases, a motion must be made by the bankruptcy attorney to impose the automatic stay.  Unless and until the automatic stay is imposed, the garnishment will continue.  The third, less common situation is where a cut-rate attorney does not give proper notice.  If notice is not given appropriately, the garnishment can remain in effect until such notice is given, as creditors are not expected to constantly check for bankruptcy filings when there is an ongoing garnishment.  The garnishment will stop once proper notice is given in these situations.

If you have a pending or ongoing wage garnishment and are considering filing for Chapter 13 bankruptcy protection in the Chicago area, it is essential that have an experienced bankruptcy attorney representing you.  A good bankruptcy lawyer will work with haste to get your case filed, but will also do so properly.  They will ensure that notice is issued immediately upon filing and warn you of any risks of the garnishment not stopping and what to do if it does not stop.  The bankruptcy attorneys at Ledford & Wu have filed thousands of Chapter 13 cases and are always happy to meet with you for a free consultation to discuss your bankruptcy options to stop a wage garnishment.

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