Photo: reallyboring via flickr
With credit card debt at an all-time high across the country, the biggest worry on debtors’ minds is whether or not their creditors will garnish their wages.Garnishment – the process of taking money out of a debtor’s paycheck via a court order– is often a last-ditch effort made by third-party collection agencies to get back some of the money they spent purchasing a consumer’s debt.
Since it requires a trial in order to be levied on someone, garnishment isn’t that common – but when it does happen, the results can be both humiliating and financially ruinous for the consumer involved.
As a result, many people with serious credit card debt look to bankruptcy as a way out of their financial woes. If a court rules in their favour and declares a Chapter 7 bankruptcy, all of their debts will be forgiven and garnishment will be a non-issue.
However, these clean-slate rulings aren’t as common as they used to be, and sometimes debtors will still be subject to having their wages docked even after their bankruptcy hearing.
Therefore, if you’re thinking about declaring bankruptcy to ease your financial woes, here are a few things to consider before filling out the paperwork:
The Difference Between Chapter 7 and Chapter 13 Bankruptcy
While a Chapter 7 bankruptcy is the ideal result of a hearing, more often than not your case will be declared a Chapter 13. The difference between the two is that while a Chapter 7 erases debts, Chapter 13 restructures all of your debts into a court-decided repayment package.
While Chapter 13 bankruptcy will protect some of your assets while you work to pay off your balance, your wages are still at risk of being garnished.
What Your Local Laws Say
The laws on bankruptcy and wage garnishment vary by state and sometimes even by county, so it’s important to consult a bankruptcy attorney in order to understand your options before taking any legal action.
In some states, wage garnishment is a mandatory procedure in the Chapter 13 repayment package. In others, it’s a punishment for failing to keep up with your bankruptcy payments. The only way to know for sure is to be proactive about your research and to seek counsel form a local expert.
Is Garnishment the Worst that Can Happen?
Due to the restructuring of federal bankruptcy laws in 2005, it’s become mandatory for people with credit card debt to attend a credit counseling meeting before filing for bankruptcy. Often, financial representatives of your creditors run these meetings and will attempt to work out a payment plan before the court is involved.
Sometimes these plans are a better course of action than declaring yourself broke, but other times these reps will attempt to use the threat of mandatory Chapter 13 wage garnishment to strong-arm you into a repayment plan that will only sink you further into debt. If this is the case, then you need to consider how much losing a portion of your paycheck will negatively impact your life compared to trying to meet the creditor’s repayment demands.
So, when you ask the question “will my wages be garnished even if I file for bankruptcy?” the answer is “maybe.” Since these laws vary so much, the best thing to do for yourself if you’ve got serious credit card debt is to contact a bankruptcy lawyer immediately. Listen to their advice, and remember that wage garnishment might not be the worst thing that can happen to you.