There are few developments more embarrassing and infuriating for a person than having their wages garnished, and wage garnishment is a legal procedure by which a person’s earnings are withheld for the payment of a debt. Many people wonder whether filing Chapter 7 or Chapter 13 bankruptcy can help them end wage garnishments, and the answer can be somewhat complicated.
In general, filing for bankruptcy will create an automatic stay that typically ceases all collection efforts. That said, there are some types of garnishments for which bankruptcy may not prove to be effective and a person should contact an attorney as soon as they receive notice of intent to garnish their wages.
Arizona Garnishment Priorities
Arizona gives priority to certain types of debts when it comes to garnishment. Under state law, garnishments are prioritized as follows:
- Wage and Earnings Assignment Order for Domestic Support
- Earnings Withholding for Spousal Support
- Earnings Withholding for Taxes
- Earnings Withholding for Elder or Dependent Adult Financial Abuse
- Earnings Withholding Order
Domestic Support Obligations
All child support orders in Arizona are issued with automatic wage withholding orders, which is basically a form of wage garnishment. All of a person’s earnings as well as non-earned sources of income will be used in calculating a person’s gross income for child support payments.
Federal law limits how much money can be deducted from a person’s paycheck for child support, but deductions may be more for child support than for other types of garnishments. Arizona state law dictates that up to 50 percent of a person’s disposable earnings can be garnished for child support.
Similarly, alimony or spousal support is another domestic support obligation that cannot be discharged through bankruptcy. The end result for many people dealing with garnishments relating to domestic support obligations is that they must seek a resolution through a family law court instead of the bankruptcy court.
Student Loans
Many people who are filing bankruptcy want to get rid of their student loans, but student loans are incredibly difficult to discharge in bankruptcy and garnishments can be up to 15 percent for student loans. Getting a bankruptcy court to discharge a student loan will require a person to prove that their loans are imposing undue hardship on the person, their family, and their dependents.
Generally, a person must prove that they cannot maintain a minimal standard of living for themselves and their dependents if they are forced to repay their loans, circumstances exist showing that the conditions that make repayment a hardship are unlikely to improve substantially during the repayment period, and the person made a good faith effort to repay the loans through making past payments or arranging for forbearances. People should not file for bankruptcy when their debt is entirely made up of student loans as the United States Department of Education may claim a person is intentionally trying not to pay their loans and the bankruptcy case will likely be dismissed.
Federal, State, and Local Taxes
The federal government can garnish a person’s wages when they owe back taxes, and a court judgment is not required. A weekly exempt amount will be based on the total of a person’s standard deduction and the aggregate amount of the deductions for personal exemptions allowed the person in the taxable year in which a levy occurs, with the total being divided by 52.
If a person does not verify the standard deduction and how many dependents they would be able to claim on their tax return, the IRS will base the amount exempt from levy on the standard deduction for a married person filing separately, with only one personal exemption. The Arizona state or a local government could also be able to garnish wages to collect unpaid state and local taxes.
People who are expecting tax refunds should also be aware that tax refunds can be considered disposable income and used to pay creditors. When a tax refund was for a tax year before a bankruptcy filing, the entire refund is considered part of the estate and can be ordered to be paid to creditors.
Other Consumer Debts
When a garnishment relates to any other consumer-related debt, such as a credit card company or a bank, then the garnishment could be thrown out through filing for Chapter 7 or Chapter 13. These creditors need to get court approval to garnish wages, and such debts are more likely to be discharged through a bankruptcy filing.
People could have other options for dealing with wage garnishments. It could be possible for a person to negotiate a reduced lump-sum payment to resolve a debt.
People could also try to get wage garnishment judgments overturned. It could also be possible for a person to apply for an exemption for hardship or file for a head-of-household exemption.
There can be very different ways of addressing wage garnishments depending on whether a person is filing for Chapter 7 or Chapter 13. In a Chapter 7 case, a person is seeking to have all of their unsecured debts discharged, so a court will usually discharge any garnishments that are not domestic support obligations, unpaid taxes, or student loans.
A Chapter 13 case is different because a person will be entering a three to five-year repayment plan under which a garnishment may be factored into what they pay. The result is that many garnishments may stand, but could be reduced as part of a repayment plan.
Contact Our Arizona Bankruptcy Law Firm
If you are dealing with a wage garnishment issue and are now considering filing for Chapter 7 or Chapter 13 bankruptcy in Arizona, you are going to want to be sure you have legal representation. DebtBusters will work with you to find answers to all of your problems and help ensure that you are able to get the financial relief you need and deserve.
Our firm is committed to helping people all over Arizona with their financial problems, and we will be sure to help you understand all of your rights and what you can do in your case. You can call (866) 223-4395 or contact us online to take advantage of a free consultation with our Arizona bankruptcy law firm.
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