Is an employer garnishing your wages? We talk to people every day about Arizona bankruptcy representation. Almost all of them have questions regarding wage garnishment. This is what you need to know.
Garnished Earnings Cause More Debt Problems
Getting your pay docked week-after-week puts a drag on finances and could cause even bigger debt problems. Garnished earnings can trigger money management issues. Keeping up with car payments, covering the mortgage, and paying credit card bills becomes difficult. Adding stress and humiliation, the employer learns far more about your personal life and finances than you ever wanted to share. And there is the frustration of not being in control of the money you rightfully earned.
Predictably, wage garnishment is often the first event in a chain reaction of missed payments. Less take-home pay can mean other obligations go unpaid. So begins a cycle of late and unpaid statements. Lawsuits begin. Failing to pay a car loan leads to vehicle repossession. Defaulting on a mortgage leads to home foreclosure.
Those four events – wage garnishment, lawsuits, repossession, foreclosure – are the driving force behind many a Chapter 7 or Chapter 13. As you will see, filing a bankruptcy petition stops bill collectors and creditors from taking further action against you or your property. And that includes wage garnishment.
Bankruptcy Can End Wage Garnishment
A bankruptcy petition requests debt relief from the federal court. The automatic stay is the first phase of that relief. As you will see, the automatic stay has an immediate impact on wage garnishment.
How far along is the wage garnishment process? The scope of debt relief depends, in part, upon where the garnishment process is at. Has the creditor filed a lawsuit? Does the creditor have a judgment yet hasn’t served your employer? Has your employer received the garnishment papers, but hasn’t begun withholding from your paycheck? Are your wages already being garnished? Personal bankruptcy provides relief in all of these situations.
If circumstances are urgent, then your attorney may file an emergency petition to protect your interests.
Even with a creditor’s lawsuit pending in Maricopa County Superior Court, the bankruptcy proceedings take precedence. State court proceedings are stayed or dismissed. Nor can a new lawsuit be filed without first obtaining permission from the bankruptcy judge. Similarly, the creditor is prohibited from enforcing a judgment by garnishing wages or accounts without a bankruptcy court order. (An exception is an action for child support, alimony, or spousal maintenance as discussed later.)
Instead, each creditor files a bankruptcy proof of claim and gets in line. If there is a Chapter 7 distribution, then creditors may receive a proportional share. After the discharge, however, they are barred from attempting to collect on discharged debts.
Here’s the bottom line. If a creditor at this very moment is suing for a judgment to collect on a debt, then filing bankruptcy will stop those proceedings. Local court actions should be suspended or dismissed so the U.S. Bankruptcy Court can take over.
Why Judgment Creditors Garnish Earnings
In Arizona, creditors use two basic garnishment methods to collect on a judgment. One method collects money from non-earnings, such as a bank account. Our focus is on the other method which collects directly from earnings, wages, salaries, commissions, and bonuses.
For the judgment creditor, attaching your earnings has the benefit of regular payments with little effort. The money rolls in like clockwork, week after week, month after month, until the judgment is paid off. Or until you obtain relief from wage garnishment through personal bankruptcy.
No one on the paying-side of this arrangement thinks garnishment is a pleasant experience. Who enjoys watching hard-earned money disappear? It’s very stressful knowing other bills will be paid late or not at all as a consequence. And that things could get much worse. We can guide your through these struggles, one debt at a time.
Can Any Debt Lead to Garnishment?
Any creditor claiming you owe money may file a civil lawsuit. If the creditor wins, then the next step is to collect on the judgment by garnishing your wages. The debt giving rise to a lawsuit could stem from past due rent, credit card charges, unpaid professional services, hospital bills, and so on.
Importantly, certain types of creditors may attach earnings without having to sue – for example, the IRS for unpaid income taxes or a parent owed child support.
Is a lawsuit pending? If you do not challenge the amount or validity of the alleged debt in court, then the creditor will likely obtain a judgment and serve a writ of garnishment on your employer. Be mindful, you have only a limited time to exercise your right to appeal the final judgment.
The good news is that bankruptcy provides immediate debt relief before, during, or after any such lawsuit.
Your Right to Debt Relief
Your debtor’s rights in bankruptcy come before a creditor’s right to garnish wages. Whether the creditor is threatening to sue, has a lawsuit pending, has a final judgment, or is already garnishing wages, the automatic stay freezes everything. The U.S. Bankruptcy Court has exclusive jurisdiction over these cases and has sole authority to sort all of these matters out. With the exception of non-dischargeable debts (DSOs, certain recent taxes, DUI fines, student loans, and some others), the unsecured debt that gave rise to garnishment is eliminated. The discharge order is the financial fresh start only bankruptcy provides.
7 Wage Garnishment FAQs
Let’s go over a few frequently asked questions about wage garnishment in Arizona.
- How much of your wages can be garnished?
The judgment creditor (as garnishor) cannot collect your entire paycheck, leaving you with only “two pennies to rub together.” Arizona law strictly limits wage garnishment. Just how deep can a garnishor reach into your net earnings? The answer is two-fold. Generally, a creditor can only attach the lesser of: A) either 25% of your disposable earnings for the work week; or garnish B) not more than your disposable earnings for that week exceeding 30 times the federal minimum hourly wage. ARS § 33-1131. - What if you get a raise while being garnished?
When earnings increase, the amount garnished may also increase as it’s a percentage of take home pay, not a fixed dollar amount. Although the judgment might get paid off sooner, you may still be short of funds every week. Do some budgeting calculations. - What happens if you change jobs?
The creditor may follow your employment, job to job, and keep garnishing until the judgment is satisfied. This could haunt you for a long time. Some people do manage to get along on 75% of their regular pay. But how long can you live on that? Unless a voluntary agreement is reached with the creditor to suspend wage garnishment or you file for bankruptcy, the collection will likely continue unabated until you have paid off the entire amount. - Can your employer refuse to garnish wages?
You could have a terrific working relationship with an employer who sympathizes with your situation. The boss, however, does not have the option of refusing a garnishment order. Once the company’s agent or human resources officer is served with the proper garnishment papers, failure to comply violates a court order and can result in sanctions. - Can your employer fire you because of garnishment?
Handling one garnishment is a modest burden on your employer, but there is a breaking point. An employer cannot fire the employee over one garnishment. The worker is still protected if a second garnishment is for child support. However, the employer is justified in terminating a worker with multiple garnishments unrelated to family support orders. - What must the employer do when you file bankruptcy?
As discussed earlier, filing a Chapter 7 liquidation or Chapter 13 wage earner reorganization stops wage garnishment. When human resources receives official notice of bankruptcy, the employer must suspend garnishment and await further orders from the bankruptcy court. - Are wages garnished to pay child support?
Child support is a continuing obligation that is not dischargeable in bankruptcy. However, eliminating other debts can free-up important resources, making it easier to pay court-ordered family support.
If you were ordered to pay child support, then your earnings may under wage assignment (a withholding support order) entered by the judge in the family law case. Wage assignment streamlines support collection. The employer typically sends withheld earnings to the Arizona Support Payment Clearinghouse.
Domestic support obligations, or DSOs, are a special type of debt. Nor does it matter that support orders were entered in a divorce or custody case outside Arizona. Discuss child support, alimony, spousal maintenance, and arrearages with your attorney.
Earning a living is tough enough without the added burden of wage garnishment. A caring lawyer with Allegiant Law Group will explain how bankruptcy proceedings could help you and your family. When you understand the possibilities, you can start making informed decisions regarding your property and debts.