BANKRUPTCY STOPS WAGE GARNISHMENTS AND BANK LEVIES

Can a creditor garnish my wages or seize bank account assets?  Will filing bankruptcy stop garnishments and bank levies? 

This article is based on California law and federal bankruptcy law.

GARNISHMENT AND BANK LEVIES BEFORE BANKRUPTCY IS FILED

A creditor (a person, business or bank to whom you owe money) generally cannot automatically garnish wages (take your earnings from your employer) or, in most cases, cannot take money from your bank account (for example, through a bank levy) in order to collect the debt.  Normally, a creditor must first obtain a court judgment against you before being permitted to take such drastic measures.

However, there are exceptions to the above general rules.  Therefore, you ought to promptly seek legal counsel to determine what, if any exceptions, might apply to your situation.

Steps That a Creditor Must Take to Garnish Your Wages or Levy Your Bank Account:

First, the creditor must, in many cases, file a lawsuit against you in a court of law.

After the lawsuit is filed, the creditor must next, in most cases, personally serve you with the lawsuit papers (called a Summons and Complaint). 

Then (assuming that you do not dispute the validity and amount debt), the creditor generally must wait 30 days after you have been served with the lawsuit papers.  If, during that time, if you do not file an Answer or other formal response with the court, then, after 30 days, the creditor may request that the court enter a “default” against you.  A default means that you can no longer, in most cases, defend against or contest the lawsuit.

After entry of a default, the creditor will normally seek to “prove up” their case against you with the court.  The creditor must prove that you owe the debt to them, and how much money you owe them.  If the court is satisfied with the proof submitted, the court will enter a money judgment against you.

Thus, a creditor, such as for example, a credit card creditor, generally must first obtain a judgment against you in a court of law before wages can be garnished or bank accounts levied (seized). 

Wage Garnishment

Wage garnishment law in California generally permits up to a maximum of 25% of your income to be garnished per pay period. 

To start a garnishment, the creditor must determine your place of employment.  Further, creditor must obtain a document called a “Writ of Execution” from the court.  Then the creditor must prepare a legal document called an “Application for Earnings Withholding Order.”  Next, the creditor must retain a levying officer to serve the order on the employer.  The employer is required to notify you about the withholding order at least 10 days before the garnishment begins.

Bank Account Levy

To start a bank account levy, the creditor must determine your place of banking or savings.  The creditor must obtain a “Writ of Execution” from the court.  Then the creditor must prepare a “Notice of Levy.”  Next, the creditor must retain a levying officer to serve the documents on the bank.  The debtor (you) is required to also receive a copy of such documents.  You will normally have at least 10 or 15 days from the mailing of the Notice of Levy before the bank accounts are actually levied.

Defenses

There are, however, defenses and exemptions that can be asserted that, in some cases, reduce or eliminate wages from being garnished or bank accounts from being levied.

FILING BANKRUPTCY GENERALLY STOPS WAGE GARNISHMENTS AND BANK LEVIES.

Filing bankruptcy documents in the bankruptcy court before the garnishment and levy funds are seized can avoid the permanent loss of funds. 

The moment that you file a bankruptcy petition with the bankruptcy court, the bankruptcy court issues an order called an “automatic stay.”  This order requires creditors and debt collectors to end all collection efforts against the debtor and his/her/their property.  In most cases, the automatic stay remains in effect until the bankruptcy case is closed.  By that time, in most cases, the debtor will have received a discharge of debts along with a permanent court order (called a “bankruptcy injunction”) that requires the creditors to forever cease attempting to collect the debt against you.

Pre-Bankruptcy Mitigation regarding a Nondisputed Debt

If you have been sued by a creditor, then, until your bankruptcy petition is filed, you are generally advised to keep all bank account deposits and balances as low as possible in case they are attempted to be seized (or better yet, to the extent possible, keep your money out of deposit accounts altogether). 

Promptly Seek Legal Counsel

Lastly, if you are reading this article, and are contemplating filing for bankruptcy protection, it is far more preferable and cost effective to seek bankruptcy counsel and protection sooner rather than waiting until you are on the verge of a wage garnishment or bank levy, which may require emergency measures and additional fees and costs to rectify the matter in whole or part.

For a free and confidential consultation contact southern California bankruptcy attorney Matthew B. Tozer.

Copyright 2010

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