Does filing bankruptcy stop a garnishment?

Garnishing wages is a remedy creditors can use to recover money they are owed from a Debtor. In order to garnish wages, a suit must be filed. Once a suit is filed, the creditor must obtain a judgment against the debtor via the proper court procedures. Once a judgment is obtained, the creditor can go through the procedure to request a garnishment order from the Court. Once the garnishment order is issued, the order is forwarded to the employer and the debtor’s wages are garnished. Each states rules and procedures for this process can be different.

Filing bankruptcy will stop this process. Once a person files bankruptcy, an automatic stay goes into effect. The automatic stay stops creditors from calling, contacting, suing or continuing to sue a debtor. If a creditor continues to call, contact or proceed with a lawsuit against a debtor who filed bankruptcy, the creditor is in violation of the bankruptcy court’s automatic stay. In that event, the creditor could be held liable for sanctions for violating the automatic stay order.

If a debtor files bankruptcy before a creditor obtains a garnishment order from a court, then due to the automatic stay, the debtor’s wages cannot begin to be garnished. If the debtor files bankruptcy after a garnishment order is issued and wages as garnished, the garnishment must stop as of the date of filing bankruptcy because of the automatic stay. Any wages garnished prior to filing bankruptcy may stay with the creditor, but any wages garnished after filing bankruptcy must be returned.

You should contact a knowledgeable bankruptcy attorney to discuss your options and to stop wages from being garnished. My office has stopped many garnishments through bankruptcy, and funds garnished after filing have been returned to the Debtors.

Can you discharge income taxes in bankruptcy?

Some tax obligations can be discharged in bankruptcy, and some cannot. Section 507 and 523 of the Bankruptcy Code addresses discharging taxes in bankruptcy. Typically, personal income tax obligations can be discharged in bankruptcy provided certain conditions are satisfied.

To discharge income taxes in bankruptcy, first, the income tax obligation has to be at least three years old at the time of filing your bankruptcy. The three year calculation starts from the date the taxes were due (including extensions). For example, 2011 taxes were due April 17, 2012. 2011 income taxes will be three years old on April 17, 2014 (if not filed under an extension). Second, the tax returns for which the tax was due must have been filed at least two years before filing bankruptcy. For example, if a bankruptcy was filed on April 16, 2012 the 2008 taxes would be three years old, but only if the 2008 returns were filed prior to April 15, 2010.

As always, there are certain exceptions to every rule. The time periods may be extended if you have filed bankruptcy before, or filed a false or fraudulent return. You should contact a knowledgeable bankruptcy attorney to determine whether you can discharge your income tax obligation in bankruptcy.

Stripping a second mortgage off your home in bankruptcy

Due to the decline in home values over the last few years, many people now find themselves with mortgage balances on their homes that exceed the value of their home. Many homeowners are underwater on their homes because of a second mortgage. Bankruptcy can provide relief to those people by stripping second mortgages provided certain conditions are met, but you must choose the correct chapter of bankruptcy in which to file.

Stripping a second mortgage can only be done in a Chapter 13 bankruptcy. If a second mortgage is totally unsecured due to the decrease in a home’s value, that mortgage can be stripped off in a Chapter 13 bankruptcy. If you successfully complete your Chapter 13 bankruptcy plan, the second mortgage is then no longer a lien on your home. It is treated just like other unsecured debts (i.e. credit cards or medical bills) and is discharged at the conclusion of the Chapter 13 bankruptcy.

To strip a mortgage in a Chapter 13 bankruptcy, the mortgage must be totally unsecured. Basically, all the equity in the home is eaten up by the first mortgage. For example, if you own a home worth $100,000.00 and your first mortgage balance is $100,000.00 or more, your second mortgage balance is unsecured and can be stripped in a Chapter 13 bankruptcy. Also, for example, if your home is worth $100,000.00 and your first mortgage balance is $99,999.99 or less, then your second mortgage is secured and cannot be stripped in a Chapter 13 bankruptcy. In sum, if a dollar of the second mortgage is still secured by equity in the home, then the whole second mortgage is secured.

You should contact a knowledgeable bankruptcy attorney to determine whether you can strip off your second mortgage. In my practice in northwest Indiana, I have successfully assisted many clients in stripping second mortgages off their homes.

Do I have to file bankruptcy with my spouse?

Typically, husbands and wives incur joint credit card bills, medical bills and other bills. A joint bill means that both the husband and wife are liable for the entire bill. The bill collector can pursue either spouse for the entire balance of the bill. A spouse who is only an “authorized user” on a credit card is liable for the amount of charges made by that person on that account. In that instance, the bill collector can pursue the “additional user” for his or her charges.

Bankruptcy law allows married couples the option to file a joint bankruptcy. Also, one spouse can file for bankruptcy while the other does not. If a husband and wife file a joint bankruptcy, then both spouses will receive a discharge from both their individual debts and joint debts. If only one spouse files bankruptcy, then only the filing spouse will receive a discharge of individual and joint debts.

When only one spouse files bankruptcy, the non filing spouse will remain liable for his or her individual debts. Additionally, the non filing spouse will remain responsible for any joint debts. What this means is that the bill collector will still be able to pursue the non filing spouse for the balance on the joint bill. Also, a non filing “additional user” on a credit card bill will still be responsible for the charges he or she made on that account. Your spouse filing bankruptcy will not discharge your debts or your obligation under any joint debts. You can only discharge your debt obligations by filing your own bankruptcy or a joint bankruptcy with your spouse.

Even if only one spouse files bankruptcy, the non filing spouse’s income and expense information is required to prepare the bankruptcy petition. (Unless the couple is separated.) Therefore, if only one spouse files bankruptcy, the filer will still need cooperation from the non filing spouse in regards to preparing the bankruptcy documents. As always, you should contact your local bankruptcy attorney for input on filing bankruptcy when you are married.

Will my employer find out if I file bankruptcy?

Many people are concerned that their employer may find out that they have filed for bankruptcy. Bankruptcy filings are public records. As such, anyone who wants to search the bankruptcy court clerk’s records can find out if someone has filed bankruptcy. The typical employer does not do this. Reason would indicate that if someone were to go to such lengths to find out if someone has filed bankruptcy, they must have been notified of a filing in the first place.

An employer will not be notified of a filing of bankruptcy unless they are listed in the bankruptcy petition schedules (as a possible creditor or if you have a claim against them), or if you notify them yourself. Otherwise, they do not receive notice of a filing from the bankruptcy court clerk. In some chapter 13 bankruptcies, the Debtor’s chapter 13 plan payment is made by wage order. In that instance, the employer would be notified of a bankruptcy.

Also, the law prohibits government and private employers from discriminating against an employee for filing bankruptcy or not paying a dischargeable debt. If you have specific questions about how filing bankruptcy may affect your employment, consult you local bankruptcy attorney.

Maxing out credit cards immediately before filing a bankruptcy.

If a credit card company notices significant charges or cash advances on an account prior to filing bankruptcy, the company does have the option to file a complaint asking the Court to determine that those purchases should not be discharged in a bankruptcy petition.

Bankruptcy Code section 523(a)(2) addresses these types of credit card transactions. If a debtor purchases more than $600.00 of luxury goods or services (goods or services not reasonably necessary for the support or maintenance of the Debtor or dependent of Debtor) within ninety (90) days prior to filing bankruptcy, those purchases are presumed to be non-dischargeable. Additionally, if a Debtor takes out cash advances of more than $875.00 within seventy (70) days of filing bankruptcy, those cash advances are also presumed to be non-dischargeable. What that means is that if a Creditor files a complaint against the Debtor alleging those circumstances, the debt is presumed to be non-dischargeable and the burden then falls to the Debtor to prove circumstances why it should be discharged in the bankruptcy.

Also, a credit card company could argue that the charges on credit were obtained by false pretenses, false representation, or actual fraud. The credit card company would have the burden to prove those facts to the Court. The likely argument is that because of the Debtor’s financial circumstances at the time when they used the credit card, they were not in a financial position to pay back any of these purchases and had no intent of paying the credit card company back, and as a result, those debts should not be discharged in the bankruptcy.

Therefore, if a credit card company notices significant cash advances or charges prior to filing bankruptcy they will look to that provision of the Bankruptcy Code to determine whether it is in their best interest to file a complaint against that Debtor and request the Court to find those debts to be non-dischargeable in the bankruptcy. Contact your bankruptcy attorney to discuss whether purchases immediately prior to filing bankruptcy will raise issues with a Creditor and result in a possible complaint filed by the Creditor asking the Court to determine those debts non-dischargeable.