A frequent impetus for a Chapter 7 or Chapter 13 consumer bankruptcy filing is when a person is being actively collected on—usually in the form of a wage garnishment and/or a bank account levy—pursuant to a money judgment entered against them. Once a judgment is entered, the party owing money is called the “judgment debtor”. The entry of a judgment against a judgment debtor should come as little surprise, as it comes after that person has already been served with a summons and complain in a lawsuit claiming monetary damages owed to the judgment creditor. If the judgment debtor did not file a response within the prescribed time periods, which is a common scenario, the judgment creditor obtained a default judgment. Regardless of whether the judgment was entered by default or after hearing on the matter, the judgment creditor can take any numbers of actions to collect the amount owed pursuant to that judgment.
The two most common avenues to collect on a money judgment are to garnish either the debtor’s wages or the debtor’s account at a bank or other financial institution. Garnishment of a bank account is also referred to as “levy”. The process for each collection tactic is different. In order to garnish wages under Minnesota statute, the judgment creditor must serve notice of garnishment on the debtor’s employer (also called the “garnishee”), shortly after which the employer is required to withhold 25% of the debtor’s income for remittance to the judgment creditor. While some government benefits such as emergency and medical assistance and other money such as child support and social security benefits are specifically exempt from garnishment, a judgment debtor’s wages and other earnings usually can be garnished up to 25% per pay period and until the judgment amount is fully satisfied.
Similarly for bank account levies, the judgment creditor serves a garnishment summons on the debtor’s bank to levy upon bank accounts in the debtor’s name up to the total amount owed on the judgment. This process usually transpires without any prior notice to the judgment debtor, who receives the opportunity to claim a portion of the levied funds exempt only after the funds have already been removed from the account. Unlike wage garnishment, a judgment creditor can take 100% of funds in the bank account up to the amount owed on the judgment. The judgment creditor may levy on the same bank account multiple times and also levy on multiple accounts in order to satisfy the amount owed.
Bankruptcy can provide relief from collection on a judgment, whether wage garnishment or bank account levy, in several ways. First and most immediately, the filing of a bankruptcy petition and schedules with the Bankruptcy Court invokes an automatic stay protection against continued collection. This means that as of the moment the bankruptcy petition is filed, no further wages or bank account funds can be legally garnished or levied. Second, it is also often possible to have returned any money that has been garnished or levied from a judgment debtor within 90 days of their filing for Chapter 7 or Chapter 13 bankruptcy relief. Only the actual filing of a bankruptcy proceeding will provide the protection of the automatic stay and ability to have garnished funds returned. The quicker a judgment debtor acts to obtain advice of a bankruptcy attorney, the better the odds are to reverse the detrimental effects of a garnishment or levy or, better yet, to avoid it altogether.
Lynn Wartchow is the founding attorney of Wartchow Law Office and has represented clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings since 2005.