Bankruptcy Stops Wage Garnishment

payrollMy employer just got served with an order to garnish my wages. How much of my paycheck will I lose? Can bankruptcy help me?

As a bankruptcy attorney, I’m often contacted by people in the Indianapolis area who need help because they’re facing wage garnishment. Even before the garnishment, they didn’t have enough money to pay their bills, so they’re terrified by the thought of having part of their paycheck taken from them. What’s going to happen, and what can be done about it?

Indiana Wage Garnishment Basics

Under Indiana’s wage garnishment law, there are four basic rules that apply to most creditors:

  • Judgment Required: Creditors can’t garnish your wages without first suing and having a judgment entered against you.
  • 25% Garnishment Rate: A creditor can intercept up to 25% of your “disposable earnings” (i.e., gross wages minus legally-required deductions, like taxes).
  • Get in Line: If creditors are already garnishing 25% of your disposable earnings, other creditors with a garnishment order will have to wait their turn.
  • Extra Protection for Low-Income Workers: For each workweek, garnishment can’t leave you with less than the minimum wage multiplied by 30. Currently that’s $217.50 per week.

How does a creditor find out where you work? Once the creditor gets a judgment, you may be ordered to appear at a “proceedings supplemental” hearing to testify about your finances, including employment. Also, creditors can obtain employment information from the Indiana Department of Workforce Development, which receives mandatory new hire reports from employers.

Bankruptcy Protection from Garnishment

So what happens if you file for bankruptcy? Under the Bankruptcy Code, an “automatic stay” takes effect when the petition is filed. The automatic stay immediately stops wage garnishment and most other collection actions. After your case is filed, I’ll promptly send bankruptcy notices to everyone involved in the garnishment process and tell them to back off.

Wage garnishment is one of the most powerful tools in the collection toolbox, but it’s no match for your bankruptcy rights. If you need help stopping a garnishment — or preventing garnishment before it happens — contact me to set up your free consultation.

Matt Conrad is an Indianapolis bankruptcy attorney and the founder of Conrad Legal LLC, which helps people in Central Indiana get out of debt with Chapter 7 and Chapter 13.

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