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.

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.