Back taxes and child support account for most of the wage garnishments. Bankruptcy is the best way, and usually the only way, to stop wage garnishment. Your options are outlined below. These options are no longer a last resort, because courts and bureaucrats have given creditors more and more power in this area. So, it’s not surprising that wage garnishment has increased as much as 300 percent in some regions since 2009.
A civil judge technically has the power to stop unfair or fraudulent garnishment. But a bankruptcy lawyer can stop wage garnishment regardless of the facts. Furthermore, an attorney can address the obligations which led to the wage garnishment order, either in bankruptcy or outside bankruptcy.
Bankruptcy and the Automatic Stay
Wage garnishment is just one of the adverse creditor actions that bankruptcy halts as soon as debtors file their voluntary petitions. Other examples include:
- Creditor lawsuits,
- Creditor lawsuits, and
In general, a bankruptcy lawyer can easily prevent these things from happening. Proper notice is usually key. If wage garnishment is an issue, both the garnishor (person or entity garnishing wages) and the garnishee (which is the payroll company in this case) must receive notice.
However, these adverse actions are rather difficult to undo. Garnishees might or might not be “creditors” according to the Bankruptcy Code. The law is a bit unsettled. So, it’s unclear whether the Automatic Stay applies to payroll companies which are garnishing wages.
The best defense is a good offense. If an ex-spouse, the IRS, or anybody else is threatening to garnish your wages, it’s best to reach out to a bankruptcy attorney as soon as possible. That’s the best way to prevent the problem from happening.
Generally, the Automatic Stay remains in force until the judge closes the bankruptcy case. Thus, a bankruptcy lawyer has plenty of time to deal with the underlying obligation.
Child Support Repayment Options
Almost half of wage garnishments are for unpaid child support. In many jurisdictions, garnishors can take up to 65 percent of your check for unpaid child support. The limits for unpaid alimony are not quite as high.
Unfortunately, such FSOs (Family Support Obligations) are not dischargeable in bankruptcy. It does not matter if a family law judge or an administrative law judge assessed the child support or other obligation. The good news is that this federal debt relief program gives bankruptcy lawyers the leverage they need to resolve these disputes.
When the money suddenly stops coming in, most garnishors are ready to make a deal. They know that, because of the Automatic Stay, they might have to wait several years before they can garnish wages. Even then, they must start back at the beginning, with a notice letter.
Although an attorney cannot discharge child support, your attorney can advise if child support can be reduced. There are a number of ways to reduce a child support obligation.
In terms of child support models, almost all Mid-Atlantic jurisdictions are income share states. So, there are many ways to modify child support obligations.
Income changes and parenting time changes are the two biggest areas. Typically, if the obligor’s income has decreased at least 10 percent, a court will lower the child support payments. Similarly, if the number of overnight visits has increased by at least 10 percent, the court will do likewise.
Child support reductions are typically not retroactive. So, a bankruptcy attorney must also work out a deal on the unpaid amount. As mentioned, bankruptcy gives debtors negotiation leverage in areas like this. This arrangement often includes partial forgiveness and a more affordable payment plan.
Income Tax Discharge Alternatives
Occasionally, past due federal and state income taxes are dischargeable in bankruptcy. The rules are:
- Tax is at least three years past due,
- Returns, whether timely submitted or not, have been on file for at least two years, and
- Debt has not been assessed (calculated) in the last 240 days.
Typically, if you have not received a collection notice in the last eight months, the debt has probably not been assessed during that time period. A bankruptcy lawyer can tell for sure.
Additionally, only income tax is dischargeable. Property taxes or trust taxes are always nondischargeable. Moreover, there must be no fraud. In this context, “fraud” is not synonymous with “malice.” Certain mistakes, such as a gross income underestimate or gross deduction exaggeration, could be fraudulent.
The assessment rule torpedoes many discharge requests. If your tax debt is nondischargeable, Chapter 13 is usually a good option. These debtors have up to five years to repay allowed claims, including past-due income taxes. During this time period, the IRS cannot harass you or even assess interest and penalties in many cases.
Wage garnishment often cripples your ability to pay bills. You have the ability to stop involuntary wage garnishment before it happens. For a free consultation with a bankruptcy lawyer, contact Bankruptcy Done Right. Virtual, home, and after-hours visits are available.