Wage Garnishment and can it be Stopped via Bankruptcy?
So many people start thinking about bankruptcy in dire circumstances. Debts keep on piling up and creditors eventually turn to more serious measures to ensure collection. Wage garnishment is one such measure that numerous people in financial trouble have had to face.
Arizona has strict rules regulating wage garnishment, when it can occur and how it can be stopped. Bankruptcy is one of the most readily attainable options.
Arizona Wage Garnishment Laws
Before examining the effect that bankruptcy has on wage garnishment, let’s take a look at some of the relevant Arizona laws.
In Arizona, wage garnishment refers to a court order or an order from a governmental agency issued for the purpose of making an employer withhold a certain portion of an individual’s wage for the purpose of debt repayment.
Most creditors cannot get a garnishment order in Arizona before they sue the debtor and get a court order. A few exceptions apply, however. The most common ones include income tax debt, alimony payments, student loans and court-ordered child support. In such instances, the garnishment can become effective without court proceedings.
In Arizona, wage garnishment limits do apply. Creditors can take up to 25 percent of nonexempt weekly disposable earnings or an amount of the wage that exceeds 30 times the federal minimum salary. Disposable earnings is a term that refers to the sum left after an employer makes deductions that are necessitated by law.
The amount that can be garnished in the case of student loans, tax debt and child support is going to be different from the general rule. For child support, the limit is up to 50 percent of disposable earnings. For defaulted student loans, the garnishment will be imposed on up to 15 percent of the nonexempt weekly disposable income.
Can You Stop Wage Garnishment by Declaring Bankruptcy?
The short answer to this question is “yes.” Bankruptcy discontinues all debt collection efforts by creditors, including wage garnishment.
The Bankruptcy Code prohibits collection efforts, including by agencies like the IRS. The prohibition covers phone calls made by creditors, debt collection efforts by mail, foreclosures, repossessions and wage garnishments.
Whenever a person files bankruptcy in Arizona (both Chapter 7 and Chapter 13 bankruptcies), an automatic stay will become effective immediately. Wage garnishment is discontinued for as long as the automatic stay is effective.
Creditors who want to continue their debt collection efforts will have to address the court and object officially. The court will be the entity that will decide whether the respective type of debt collection can continue while the bankruptcy is in effect.
The outcome of the bankruptcy case itself will also be determining for the outcome of the wage garnishment.
Whenever a person gets debt discharge and the debt that contributed to the wage garnishment is included, the debtor will no longer have an obligation towards the respective creditor. Thus, the creditor can no longer pursue payments through wage garnishment or other means.
If the debt hasn’t been included in the discharge, the creditor will be free to continue with the wage garnishment after the debtor has gotten their bankruptcy discharge. In that situation, the halt is going to be only temporary.
In the case of Chapter 13 bankruptcy, an automatic stay will also be effective right from the start. A Chapter 13 bankruptcy, however, doesn’t come with debt discharge. Rather, the debt will be reorganized and some portion will have to be paid off in the coming three to five years.
After the end of the bankruptcy period, remaining debt will usually be discharged. This means that collection efforts will cease.
One thing to keep in mind is that certain types of wage garnishment could continue being effective under Chapter 13 bankruptcy. These will usually be imposed for the purpose of collecting child support or student loan payments, for example. Always consult experienced legal professionals for clarifications.