When is a bigger garnishment better?

This is absolutely counter-intuitive, I know, but it may actually be better to wait a little bit longer to file a Chapter 7 or a Chapter 13 bankruptcy if your wages are being garnished. This is because of the operation of two different statutes in the bankruptcy code. First, we have to look at 11 USC Sect 522(h) which allows the Debtor to avoid (get back) transferred property if the property could be exempted and if the trustee could have gotten it back. Second, we turn to 11 USC Sect. 547 which says, in a very circuitous way, that any transfer aggregating more than $600.00 to an unsecured creditor in the ninety (90) days prior to filing the bankruptcy can be recovered by the trustee (see 547(b) and 547(c)(8)).

So, if you had only $599.99 garnished from you wages in the ninety (90) days prior to filing your bankruptcy, then you cannot touch that money; you cannot avoid or get back the transfer. But, if you wait just one more pay-check so that the amount garnished is $600.00 or more, then you can go after the money. You need to make sure your attorney knows your pay-checks are being garnished and you must have enough “wild card” exemption (see 11 USC Sect. 522(d)(5)) to cover the amount, but this usually is no problem.

The first step for your attorney is to make sure the amount garnished during those ninety days exceeds $600.00. Then, he or she must list that money as an asset and exempt it. After filing the petition, they should send a demand letter to the creditor and the creditor’s attorney demanding the money be returned. The creditor will want to wait and see if the trustee abandons the property as exempt, and then they will likely offer somewhere around 75% return. The reason is that many districts require an Adversary Proceeding (a lawsuit within the bankruptcy) to be filed in order to recoup the funds. This means litigation costs to you, the Debtor. Then you decide if you want to take the offer or push the matter further.