Updated: Oct 22, 2021
From the moment that a bankruptcy petition is filed, the “automatic stay” is invoked and this automatic stay of legal proceedings affords many protections from collection activities, including wage garnishment on W-2 income, other income levies such as from 1099 income–usually earnings of self-employed persons or independent contractors–and bank account levies. In other words, the filing of chapter 7 bankruptcy effectively puts all collection activities and legal proceedings on immediate hold due to the automatic stay. Depending on the circumstances, the automatic stay can be lifted for various reasons but rarely, if ever, so that a creditor can continue wage garnishment or bank account levies. (One of the more common reasons for the bankruptcy court to allow the automatic stay to be lifted is for the foreclosure of a homestead that is in default and for which there is no proposal to cure the arrearages, for example through a Chapter 13 plan.)
Wage garnishment is a collection remedy that is usually only, but not always, available after a judgment has first been obtained or at a minimum after you have not responded to a summons and complaint previously served on you several weeks prior. If you have been served with a summons and complaint in a collection lawsuit and/or a judgment has been entered, you are likely also aware that a wage garnishment is headed your way. While most employees will receive notice of the wage garnishment prior to the garnishment taking effect via the next payroll, employers do not always provide prior notice of the upcoming garnishment and availability to claim potential exemptions from garnishment. While a debtor often has advance notice of a wage garnishment, you almost never receive notice of a bank levy until after it has already occurred.
For most people in Minnesota, a wage garnishment means that 25% of your net (“take home”) earnings will be garnished each payroll until the underlying debt is paid off. There are exemptions to wage garnishment available to some individuals meeting certain criteria.
Even if you are a self-employed or contract worker, 1099 non-wage income can still be garnished, especially if the garnishing creditor is aware of such income from previous disclosures made to them including in credit applications.
Bankruptcy puts an immediate stop to wage garnishment and all other collection tactics. In some cases, the last 90 days of wages garnished from you can be refunded by the garnishing creditor within weeks after the bankruptcy is filed.
Located in Edina, Minnesota, bankruptcy attorney Lynn Wartchow represents clients in all Chapters of bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota.