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What effect does bankruptcy have on wage garnishment?

Wage garnishment may be part of collection effort prior to bankruptcy

In addition to being overwhelmed by unpaid bills, many people considering bankruptcy find that creditors have garnished their earnings to pay back debts. A certain amount of money is removed automatically from their paychecks, leaving them with less money to handle their financial problems.

Filing bankruptcy can stop wage garnishment immediately with the automatic stay issued by the U.S. Bankruptcy Court. This will prevent bill collections and lawsuits while the case is active.

Wage garnishment doesn't usually come into play until a debt has been owed for a significant amount of time, but it's something that people should be prepared to face as part of the debt collection process.

"Typically a garnishment order comes at the end of a long debt collection process," according to the "Credit Guy" Todd Ossenfort, a debt expert who writes for CreditCards.com. "First, the debt is charged off by the original creditor, usually after the account has not been paid for more than 180 days. Next, the account is sold or moved to a collector."

If the collector files a lawsuit and the debtor does not attend the court hearing, or doesn't convince the court why garnishment should not take place, a judgment will be made in favor of the collector. Afterward, an order may be issued allowing the collector to get the debt paid through an individual's employer.

The amount of money that creditors are allowed to take from a debtor's earnings depends on the state where the individual lives. In Kansas, for instance, creditors may take as much as 25 percent of a person's paycheck after taxes because the state's exemptions protect 75 percent of a wage earner's income.

Usually, creditors garnish earnings to recoup payment on unsecured debts such as credit card and medical bills. The stay applies to such debt and will halt it. However, it does not apply to bills that cannot be discharged in bankruptcy, including back payments for alimony, child support or taxes. Once a debt has been discharged by the court, the decision eliminates a creditor's right to garnish the individual's earnings in the future. In some cases, a creditor who has collected wages to pay an unsecured debt may have to return some of the money. If more than $600 has been garnished in the 90 days prior to the bankruptcy filing, the person may be able to recover that amount.

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