When a creditor recovers a monetary judgment against you, they have several collection tools they can use to collect the sums owed to them. One of the most effective collection tools is an account garnishment or wage garnishment. The judgment-creditor instructs your financial institution or your employer to pay money that is owed to you directly to them instead.
Account Garnishments
A garnishment against an account held at a financial institution allows a creditor to have funds held in your account paid directly to them to be applied to the judgment against you. The law provides certain exemptions of certain funds that the creditor cannot garnish, but it is possible a creditor could remove the full amount held in your account.
Wage Garnishment
If a creditor serves your employer with a wage garnishment, your employer will be obligated to pay a certain percentage of your paycheck directly to the creditor or the court. Wage garnishments are typically “continuing,” which means that deductions will be made from all of your paychecks until the creditor’s judgment against you has been paid in full. If your employer does not comply with the garnishment, your employer may be held liable to pay the total amount due.
Federal law restricts the percentage of income a collector can garnish from your “disposable income.” Your disposable income is the amount of your paycheck after mandatory deductions for taxes, social security and Medicare have been made.
How Filing Bankruptcy Helps
When you file your personal bankruptcy case, the automatic stay is immediately effective and prevents any further collection activity against you. Thus, any garnishments pending against you must stop. You will start receiving the full amount of your wages again. Additionally, the debt that is linked to the garnishment may be dischargeable, which means you are not obligated to pay it after you receive your discharge order.
Filing for bankruptcy is not an indicator of failure. In fact, it is actually a method by which you can lay the foundation for a better, brighter financial future for you and your family.