Wage Garnishment and Bankruptcy

If your budget is already stretched thin, wage garnishment can be the last straw. Even a small garnishment can make the difference between being able to pay the rent, utilities, and other essentials on time. If you’re forced to juggle bills, late fees and interest can make a bad situation worse.

If your wages are being garnished or you’ve been notified that a creditor has obtained or is seeking a garnishment order, it’s time to educate yourself about your rights.

What is Wage Garnishment?

When your wages are garnished, your employer is required to take a certain amount out of your paycheck and send it to the court (or, in some cases, directly to the creditor) until your debt is paid off. Most wage garnishments require a judgment and a court order, but there are some exceptions.

Michigan Wage Garnishment Limits

Michigan law protects most of your paycheck from wage garnishment. The amount available to a creditor depends on how much you earn. The amount that can be garnished is the lesser of:

  • 25% of your disposable income, or
  • The amount of disposable income left over after deducting 30 times the federal minimum wage

Disposable income is the amount left after legally-required deductions like taxes and Social Security contributions. Disposable income may be different from your net income because not all deductions are legally required. For instance, you may have retirement account contributions deducted from your paycheck, but they won’t be deducted when determining disposable income.

Stopping Wage Garnishment in Michigan

After a creditor obtains a judgment against you, they must wait 21 days to get a garnishment order. That means you can avoid garnishment by paying off the creditor before the 21 days runs out.

Of course, most people facing garnishment can’t just pay off the debt in full. If that’s not an option, you may be able to avoid garnishment by reaching an agreement with the creditor. For instance, you may be able to settle the debt with a lump sum payment that is less than the full amount, or to work out a voluntary payment arrangement that doesn’t involve wage garnishment. You may also file a motion asking the court to allow you to make installment payments instead of having your wages garnished.

The Automatic Stay in Bankruptcy

If you can’t work out a reasonable payment plan with the creditor or can’t afford to make payments at all, you may be able to avoid or stop wage garnishment by filing for Chapter 7 or Chapter 13 bankruptcy. These two types of bankruptcy are very different, but they have one important thing in common.

In most bankruptcy cases, a court order called “the automatic stay” is entered as soon as you file your bankruptcy petition. This order tells creditors and others to stop any collection action against you.

  • If the creditor hasn’t yet gotten a judgment against you, the automatic stay can prevent them from going to court, meaning that no garnishment order is entered.
  • If the creditor has a judgment against you but hasn’t yet obtained a garnishment order, the proceedings are halted and the order is not issued.
  • If the creditor has a garnishment order but your employer has not yet started withholding money from your paycheck, the automatic stay freezes the process.
  • If your employer is already withholding money to satisfy a judgment order, the automatic stay tells them to stop.

In some cases, if you act quickly, you may even be able to get back some of the money that has already been withheld from your paycheck.

The automatic stay doesn’t last forever. But, it can interrupt wage garnishment while you work toward a longer-term solution. Say, for example, that a creditor has a wage garnishment order against you for an unpaid credit card bill. Credit card debt is typically dischargeable in Chapter 7 bankruptcy. So, the automatic stay could stop wage garnishment while the bankruptcy case is pending, then the debt could be discharged in the bankruptcy case.

Talk to a Saginaw Bankruptcy Attorney

To learn more about how bankruptcy can stop wage garnishment and more, talk with an experienced Michigan bankruptcy attorney. Josh Reinert’s law practice is focused entirely on helping people get out of debt and reclaim control of their financial lives. You can schedule a free consultation right now by calling 989-799-8860 or filling out the contact form on this page.