Limits on Garnishment

If you are currently being garnished, the first you need to know is whether there is a limit on that garnishment.  Is the creditor taking too much?  Do they even have a right to garnish you at all?  What options do you have if you’ve been hit by a garnishment?

Garnishment Defined

A “garnishment” occurs when one of your creditors sues you, wins, and then gets the court to take part of your wages to satisfy the debt.  Unless you file bankruptcy or convince the judge why a lesser amount should be allowed, the creditor may be able to take up to 25% of your disposable income or the amount of the disposable earnings that exceed 30 times the federal minimum hourly wage – whichever is less.

Who can garnish my wages?

Virtually any type of creditor possesses the ability to garnish your wages.  Banks or credit unions, credit card companies, and, most commonly in Southern Indiana, medical bill collectors all enjoy access to the same legal framework that allows them to garnish your wages.  Shockingly, the Consumer Financial Protection Bureau released a report in 2014 showing that 43 million Americans have unpaid medical bills on their credit reports.

In the event child support or alimony is owed, the creditor can be a legal guardian or ex-spouse.  Moreover, a child support or alimony creditor may garnish up 65% of your wages for payment of past due child support or alimony.

What constitutes wages?

“Wages” initially meant money that you received from your pay check.  That term has evolved to apply to whole range of types of income.  “Wages” is currently defined by the Indiana Legislature as “wages, commissions, income, rents, or profits remaining after the deduction from those earnings of amounts required by law to be withheld”.

Federal and state courts have further expanded and limited the applicability of this wage garnishment statute.

Example of expansion of state wage garnishment statute

When the statute was first enacted into Indiana state law, creditors disputed that it applied in bankruptcy proceedings.  Hypothetically, debtors enjoyed more protection of their wages outside of bankruptcy than inside of bankruptcy.  Bankruptcy judges found this to inconsistent with the “spirit” of the state wage garnishment exemption so debtors can now exempt their wages within bankruptcy, too.

Many courts have also ruled that your creditor cannot use contempt against you as a way to force you to repeatedly attend hearings related to the garnishment.  The courts have held that this practice basically amounts to putting someone in jail because they owe money to a private creditor.

Example of limits of state wage garnishment statute

Multiple courts have found that the wage garnishment statute applies only in civil proceedings.  This means that if you are prosecuted criminally and ordered to pay criminal restitution to your victim or the state, the 25% cap on wage garnishment does not apply to you and you can be forced to pay more.  Bankruptcy can, however, reorganize that debt to allow you pay it off in a more manageable way.

Sole proprietorships also need to exercise caution where garnishments are concerned.  Courts have come out and said that if you are a sole proprietorship and you alone decide when and how much to pay yourself, then you don’t get that protection.  The court’s opinion did speculate, though, that if you could show a history of paying yourself on a schedule based on some predetermined formula that you would likely get to use the wage exemption statute.  The bottom line is that it needs to be a set periodic payment.

In that same vein, courts have also found that 1099 income paid out to subcontractors may qualify as wages.

Those in the education/teaching profession have also run into some (more) bad luck.  A recent ruling found that the escrow account set aside for some teachers who elect to be 12-month employees so they can get paid in the summer does not constitute “wages” and can be completely taken.

Bonuses and severance packages also fall into this category.  This is, again, because the court looks to determine whether the income is received “periodically”.  If not, then no exemption.

How to stop a garnishment?

The first and most obvious option is to just pay off the debt.  However, if that were really an option, you wouldn’t be reading this article to begin with.  The second option, which I don’t really consider an option at all, is to do nothing.  Sure, eventually you may pay off the debt and that one creditor won’t be garnishing you any more; but you won’t be able to pay your car note, or your rent or mortgage and then those fall behind and you’re in real trouble.  Also, how many other creditors will be waiting in the wings to swoop in with the next garnishment?  The last, least expensive and most effective option is bankruptcy.  Chapter 7 Bankruptcy or Chapter 13 Bankruptcy each have the power to stop garnishment and get you a fresh start.

How to Stop Garnishment

If you have ever had to ask yourself “how do I stop garnishment” then you probably know that a garnishment can be one of the most devastating financial events a person can go through.  You work all week looking forward to your paycheck.  You have bills to pay, groceries to pick up and gas to put in your car so you can get to work next week.  All of a sudden, you see your pay stub or bank account balance and realize that something isn’t right.  You contact your payroll department who reluctantly informs you that, yes, you have been served a garnishment

What is a Garnishment?

A garnishment is basically a method by which one of your creditors seeks to obtain money you owe them.  Most garnishments come from creditors who have sued you in civil court; however, other garnishments can come from student loans, the IRS, and even the Department of Defense.  Most of those types of garnishments can be stopped or interrupted by a bankruptcy.  Unfortunately, other types of garnishments, such as child support or alimony, are not subject to the bankruptcy and you may have to examine other options.

How does Bankruptcy Stop Garnishment

When you file Chapter 7 or Chapter 13 Bankruptcy, an “automatic stay” comes into place.  The automatic stay is a federal injunction against the collection of most kinds of debts.  This means that once you are filed, the creditor that is garnishing your wages must stop garnishing your wages.  If they don’t stop, they are actually violating the bankruptcy code.  Depending on the nature of the violation, you may even be entitled to damages against them.

What Should I Do to Stop Garnishment?

If you think you are the victim of a garnishment, wrongful or otherwise, you need to get help.  If you sit back and do nothing, the creditor will garnish your wages until the debt (and any fees, interest or attorney fees) has been paid in full.  Get help today.  We offer unlimited free in-office and phone consultations as well as a special payment plan designed specifically for garnishment cases..

Is your favorite store filing bankruptcy?

Credit Suisse predicts another wave of retail store business bankruptcy filings this year.  In 2017, fifty separate retail giants filed bankruptcy due in large part to the emergence of Amazon and other online retailers.  Many investors anticipate 2018 will be even worse for typical brick-and-mortar retailers.

2017 Retail Store Filings

The following retail stores filed business bankruptcy in 2017:

• The Limited
• Wet Seal
• BCBG
• Vanity
• HH Gregg
• Radio Shack
• Gander Mountain
• Gymboree
• Payless Shoe Source
• True Religion
• Toys’R’Us

Projected 2018 Bankruptcy Filings

The following retail stores are projected to file business bankruptcy in 2018:

• Sears
• Razer
• BeBe
• Stein Mart
• Burlington Stores
• Destination Maternity Corp. (parent company of A Pea in the Pod, Motherhood Maternity, and Destination Maternity)

What does that mean to you?

Depending on the type of bankruptcy that these companies file, you may or may not get to continue shopping at your favorite retailers.

Chapter 11 Bankruptcy

If the retailer files Chapter 11 Bankruptcy, you will likely get to continue your regular shopping habits.  Corporations file Chapter 11 Bankruptcy to restructure their debt so that they may continue operations.  The retailer typically files a “plan” that proposes how much will be paid to which creditors and when.  If that plan is approved by the court, then the retailer has a chance to stay in business as long as it abides by the provisions of the plan.  If it doesn’t comply, then it will likely end up in Chapter 7 Bankruptcy.

Chapter 7 Bankruptcy

Corporations file Chapter 7 Bankruptcy to terminate the business.  Corporate Chapter 7 Bankruptcy ensures the orderly liquidation of business assets so as to maximize payments to the business creditors.  Corporations may also end up in Chapter 7 Bankruptcy if the corporation previously filed a Chapter 11 Bankruptcy but that bankruptcy failed.  If your retailer files Chapter 7 Bankruptcy, don’t count on shopping at that store any more.

A Sign of the Times

It should come as no surprise that brick-and-mortar retail businesses are going belly-up.  Online retailers will only grow more and more dominant.  Without the need to purchase and maintain a massive network of physical business locations, online retailers can remain agile and quick to respond to market forces.  A perfect example is Amazon’s foray into the grocery business.  Since grocery stores are technically “retail stores”, they remain one of the only sound business models in that industry.  Amazon recognized this and purchased Whole Foods last year as a way to get into the grocery business.

Business Bankruptcy

If you own a retail business that is suffering as a result of this new online economy, contact us today.  We may be able to help you deal with your debt and, hopefully, keep you out of bankruptcy.

Multiple Bankruptcy Filings

A myth exists that states you can only file bankruptcy once in your life.  That is simply untrue and for good reason.  One may have multiple bankruptcy filings.  Bankruptcy is meant to allow the honest but unfortunate citizen a means of getting back on his or her feet.  This benefits the citizen, his or her family, and society as a whole.  The average person may go through multiple “bankruptcy-causing” events throughout his or her lifetime.

Bankruptcy-causing Events

When you think about consumer debt and bankruptcy, you might imagine some person who just goes on shopping sprees with no ability or intention of repaying the debt.  However, the real reason that most Americans end up filing bankruptcy has nothing to do with self-indulgence or an inability to resist temptation.

Medical Expenses

A Harvard University study indicates that unpaid medical bills are the leading cause of bankruptcy.  Rare or serious illness, catastrophic injuries – none of us are immune to these events.  Moreover, that study showed that 78% of filers actually had health insurance.  So this wasn’t a case of “well that person should have had insurance” – the majority of them did.  The unfortunate truth is that we all may be one accident or one illness away from bankruptcy.

Reduced Income or Job Loss

The Number Two spot goes to a decrease in income or loss of employment.  Companies now face a global economy with more and competition and automation.  That means they need to cut down on costs and, for many companies, the biggest expense line-item on their balance sheet is “payroll”.  Again, just like catastrophic medical events, you typically have no control over whether your employer is going to fire you.

Divorce

Generally, while you are married, you enjoy the benefits of what is referred to as “economies of scale”.  Simply put – you only need one roof over a married couple’s head – not two.  You only need to pay one cable bill, one electric bill, or one internet bill.  Once you split up and move into separate residences, those expenses typically double.  More specifically, divorce is expensive.  Divorce attorneys are expensive, trial is expensive and living off of one income where once there might have been two is expensive.  Many times, I see instances where couples get divorced and then each spouse files bankruptcy within a matter of months.  The burden is simply too much to handle without the contribution of the other spouse.

Multiple Bankruptcy Filings

Now circle back around to the beginning of this article.  How many co-workers, friends or family members do you know that have been affected by one or more of these life-changing events?  Moreover, life is usually not predictable or convenient.  You may lose your job this year, file bankruptcy and then end up getting divorced five years later.  You may encounter multiple catastrophic medical events throughout your life.  If you cannot afford to deal with the debt that results from each of these events, what else are you supposed to do?

Again, bankruptcy is for the honest but unfortunate citizen.  Sure, you hear ridiculous stories about how some random (nameless) person filed bankruptcy and got to keep a Rolex or a Rolls Royce.  Those stories are usually half-true and don’t really present all the facts necessary to truly understand how that conclusion was reached.  The majority of bankruptcy filings are done by hardworking Americans who just ran into some bad luck.  I know I’ve had some bad luck before – you probably have, too.  Don’t let it define you.

You May Discharge Student Loans Through Bankruptcy

The general rule is that student loans are not dischargeable in bankruptcy.  In order to discharge student loans in bankruptcy, you must satisfy the Brunner Test.  The Brunner test requires that you must demonstrate that (1) you cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for yourself and dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that you have made good faith efforts to repay the loans.

However, more and more case law is developing that indicates that the tides may be turning on not being able to wipe out student debt in bankruptcy.

New Student Loan Case Law

Thankfully, recent judicial opinions have come out in favor of narrowing the classification of what constitutes a “student loan”.  In Essangui v. SLF V-2015 Trust, a debtor took out a private student loan.  She used that money to pay for tuition, books, and supplies at a Medical Education Readiness Program (MERP).  Subsequently, the Court found that just because you take out a student loan and use it for educational expenses, it doesn’t mean that you are automatically denied the possibility of discharge in bankruptcy.  The court concluded that “the language of the statute suggests that Congress worked to strike a delicate balance between the fresh start policy for debtors and the protection of certain educational programs and lenders offering loans for such programs”.

In ECMC v. Murray, the court actually stated that “in the interest of bankruptcy’s commitment to providing debtors a fresh start, that the [Brunner] test should not be applied too restrictively”.  Fortunately, the court even went so far as to say that just because the debtors were able to afford an income-based repayment (“IBR”) plan, didn’t mean they were stuck with their student loans.  The court recognized that by the debtors only making the payments under the IBR, their student loan principle balance was actually increasing, not decreasing.

Get Rid of Student Loan Debt

Unfortunately, Evansville Bankruptcy Lawyers may immediately shy away from the question of “can I get rid of student loan debt in bankruptcy?”.  At The Law Offices of Dax J. Miller, LLC, we review each case to determine whether you may potentially discharge some, if not all, of your student loans.

If you have questions about student loan debt, contact The Law Offices of Dax J. Miller, LLC today.