Can I Get Garnished Money Back From a Bankruptcy Creditor if it Was Taken After an Automatic Stay?
Wage garnishment is a last resort effort to collect on an outstanding debt. It’s a tool that’s authorized by the court system. When debts continually go unpaid, the courts may allow garnishment to occur. This means that your employer is required to garnish your wages, or withhold a portion of your income or bank accounts, so that you may begin to repay your debt to your creditors.
In most states, this process must get initiated by a court order. It can only begin if a judgment for the money owned has gotten entered into the court system. State law generally requires creditors to give debtors notice about pending legal action. Additionally, most creditors prefer to avoid the aggravation of filing a lawsuit. However, once the suit is filed and the judgment is passed down, the debtor’s options become very limited.
There are some situations when wage garnishment gets complicated. In most cases, when you file for bankruptcy, an automatic stay goes into effect. An automatic stay gives the debtor protection from his or her creditors. It’s one of the most powerful laws in bankruptcy and can bring severe penalties if violated by creditors.
The stay is often one of the most important reasons to file for bankruptcy. For example, if you’re on the verge of getting evicted, entering foreclosure, or are about to lose resources such as utilities, welfare, unemployment benefits, or your job, the stay may become a useful tool to help you survive.
If you’ve had wages garnished by a creditor after a stay, there are some things to know:
- The creditor should repay the money that was garnished because the garnishment is a violation of the automatic stay imposed by the bankruptcy filing.
- When the cash is returned by the creditor, the money then becomes the property of the bankruptcy estate (unless it is exempt) and the trustee may use it to pay the debtor’s creditors.
The trustee should work to seek the return of the garnished money. - If your trustee does not take this action, you are able to ask for the return of the money. When you do this, you must understand that the money is probably going to get handed over to your creditors.
- The bankruptcy schedule allows you to list whatever garnishments may have taken place against you. If this particular garnishment did not get listed in the schedules, you may wish to disclose the garnishment to the trustee during the 341 meeting of creditors.
It’s important to consider your situation so you can determine whether you’re entitled to receive garnished wages back. Bear in mind that these wages may get relinquished back to your creditors. If you’re unsure of how to proceed, it’s often useful to consult an attorney for assistance.