Will bankruptcy stop garnishment?

What is wage garnishment?

Wage garnishment is the involuntary withholding of a person’s earnings to repay outstanding debt. It is required by a court or government order and applicable in all 50 states, the District of Columbia and U.S. territories.

Garnishment is based on an employee’s disposable earnings, which is the balance left over after legally required taxes and withholdings are deducted. Earnings include a person’s wages or salary, as well as commissions and bonuses. Pension and retirement programs are also considered part of the debtor’s earnings, but tips are generally not.

How bankruptcy stops garnishment

When you file for bankruptcy, an automatic stay is issued to stop debt collection efforts for any eligible debts. The court’s bankruptcy clerk will notify your creditors of the stay so they are aware of your bankruptcy filing. From that point on, creditors may not continue to contact you or take action against you, including garnished wages or filing a lawsuit.

Chapter 7 and Chapter 13 are the most common types of bankruptcies available to individuals. These types both issue an automatic stay with a bankruptcy filing, offering protection against collection efforts. However, it is important to note that it may not cover all debts, such as child support, and the length of your stay can also vary, lasting just a short time in some cases and years for others. However, it typically lasts the length of your bankruptcy case.

Debts that can and cannot be discharged

When you file for bankruptcy, there are certain debts that can and cannot be discharged. It is important to know what can be discharged so you know how much debt has to be filed for bankruptcy. Note that you must submit all debts to the court in order to be considered for discharge.

Bankruptcy effects

Bankruptcy can have a lasting impact on your credit score, staying on your credit report for up to seven years with Chapter 13 and 10 years with Chapter 7. Throughout this time, there may be some challenges you face, such as the loss of property and the inability to qualify for a loan.

Damage to credit

Bankruptcy can stay on your credit report for 10 years or longer, damaging your credit score. It also makes it harder to borrow again in the future. Payment history is the most significant factor in what affects your credit score, so while bankruptcy can have severe impacts, making regular timely payments can help increase your score over time.

Liquidation of Property

Often, a debtor is forced to liquidate assets in order to resolve their debt. With Chapter 7, this is a requirement that you liquidate certain assets for repayment. Even if you file Chapter 13, you still may need to sell property in order to come up with the cash for your repayment plan.

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Remaining debt

Not all debts may be discharged with your bankruptcy, so you may still be responsible for repayment of certain debts. That means you will need to juggle those payments with any repayment plan you may have from your bankruptcy filing.

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How to recover from bankruptcy

There are some things you can do to recover from bankruptcy and improve your credit score that much faster.

Keep all bankruptcy paperwork

It is critical that you keep all of your bankruptcy paperwork in case you need to show proof in the future. If your garnishments continue after your case or your creditor tries to pursue collection efforts for a paid or discharged debt, you will need to be able to show your paperwork. You may also be asked to show proof of discharge when applying for a new loan.

Create a budget

Making — and following — a budget helps ensure you won’t have to file for bankruptcy again in the future. Calculate your monthly income and deduct your bills and expenses. Be sure to account for things like groceries and your cell phone bill. This will better help you manage your money and ensure your bills get paid every month so you do not have to risk a bankruptcy filing again.

Outline future goals

Setting financial goals will help you focus on your savings and make healthy decisions when it comes to your spending. With a specific goal in mind, you are more likely to prioritize your savings.

Make timely payments

It may take some time to rebuild your credit after bankruptcy, but making on-time payments can help boost your credit score that much faster. Payment history accounts for 35% of your FICO score, so be sure to pay your bills on time so you can show a stable payment history.

Start saving

It is important to have an emergency fund so you can use your savings in an emergency rather than needing to take on new debt. Experts recommend saving at least three to six months’ worth of expenses so you can still meet your bills if you lose your job or have another major life change. Consider opening a high-yield savings account or money market account to house your emergency fund so you can earn interest while you save.

Avoid debt

Taking on extra debt can be counterproductive to your long-term financial goals, impacting your ability to save and pay off any remaining debt. It may be tempting to take out a personal loan or get a new credit card, but these typically come with very high rates for those with bad credit. That means you will waste more dollars on interest when you could be saving that money instead.

Leverage credit cards

Not all debt is bad. When you are ready, you can use a credit card to help improve your score by becoming an authorized user on a family member or friend’s account. You can also take out a secured credit card to rebuild credit. However, be careful not to rack up a big balance and make sure you pay off what you spend quickly so you do not risk further damage to your score.

Track your credit score

As you pay off debt, you can watch your credit score grow over time. It is important to keep a watchful eye over your credit report to ensure that all payments and debts listed are accurate and no fraudulent activity has occurred. The last thing you want is to be penalized for a debt you already have paid or one that does not even belong to you. You can get a free credit report each year or use a credit report site to help keep you on track.

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