Kentucky Bankruptcy Law

Counsel with Care

The One, Two Punch of Garnishment

No, this sort of garnishment is not found on a fancy Christmas dinner plate. This is a legal mechanism by which creditors can get the money you owe them without your consent. Once a creditor has obtained a judgment against you in a court of law (and there are some government creditors that do not have to go through the court process, but still have to issue notice), they can obtain a garnishment order that you will not be aware of until it hits.

Garnishments typically take two forms. The one most people are aware of is a wage garnishment. This is an order issued to the debtor’s employer to withhold up to a certain percentage of the pay. This can actually be a huge hit, but it is only the “one” punch that leaves your head spinning. The “two” knockout punch that often surprises people is a bank account garnishment. So, if your paycheck is direct deposited into an account, the creditor can scoop the rest of your income right out of the bank leaving you with no means to pay electricity, rent or a house payment.

While a wage garnishment is an ongoing order that allows for up to a certain percentage to be seized each month, the bank account is a one time hit, yet it takes all. However, the creditor can issue new bank account garnishments so as to hit the accounts repeatedly over time getting whatever happens to be in there at that moment.

The only defense once this barrage of punches starts flying is to file bankruptcy. If an individual creditor seizes more than $600.00 through these garnishments in the 90 days immediately preceding filing, then there is a chance of recovering them. So, it is important to take action and seek the counsel of a bankruptcy attorney before you are down for the count.

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December 4, 2014 Posted by | Alternate Debt Relief, Bankruptcy, Chapter 13, Chapter 7, consumer bankruptcy, consumer debt, Consumer Protection, Debt collection, garnishment | , , , , , , , , , | Leave a comment

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.

June 5, 2013 Posted by | Bankruptcy, Chapter 13, Chapter 7, Debt collection, Exemptions, Garnish, garnishment | , , , , , , , , , , , , , , | Leave a comment

Divorce, debt and the Devil’s heyday

I was sitting in state court just the other day and saw yet another example of the interplay between divorce and bankruptcy. A creditor had sued a woman for a delinquent debt. The woman came to court to defend against a motion for default judgment. Her defense was that she was not responsible for the debt because it had been assigned to her ex-husband in their divorce.

Unfortunately, that is not a valid legal defense. Many divorced persons erroneously assume that the divorce decree assigning debt to their ex also absolves them of liability on that debt. It does not. This woman is now facing wage and bank account garnishments because her ex-husband failed to pay the debt. He may have even filed bankruptcy which would explain why the creditor was only coming after the woman. Her only option is to go back to family court and get that judge to enforce the divorce order using contempt powers and make the ex re-pay her for what it cost her. If he only filed a Chapter 7, his obligation to her remains. If a Chapter 13, it would likely be treated as an unsecured debt that can be discharged since it is not the same as child support or alimony.

Regardless, if he is without resources, this may mean he spends some time in jail for contempt, but the woman’s finances are still wrecked and she may also have to file bankruptcy to get relief. Ah, divorce – the curse that keeps on cursing – the devil’s own little specialty area. Anyway, it is important for family law practitioners to know something about bankruptcy and bankruptcy lawyers to know something about family law so that their clients are not caught unaware.

April 19, 2013 Posted by | Bankruptcy, Debt collection, Divorce, Family Law, Garnish | , , , , , , , , , | 2 Comments

Violation of the Discharge Order: What you get

I post last Friday about how to pursue a violation of the discharge order from a bankruptcy. Once contempt has been proven to the court, the question turns to sanctions. This normally involves an award of monetary damages to the Debtor to be paid by the creditor. While it seems that this part is the simple, no-brainer part, it is actually where the most care should be taken.

We need to go back to prior to re-opening the bankruptcy case to be sure to cover this topic adequately. The court is going to look to see if the Debtors’ attorney went straight to litigation as opposed to attempting to mitigate damages. My practice on this may go overboard on mitigation, but I believe the principal is sound. I always provide my clients with a copy of the discharge order and instruct them: 1) if a creditor violates the order, send them a letter and attach a copy of the order making sure to keep a copy of the letter sent, and 2) if the creditor persists, they should contact me. Once they contact me, I will again communicate the order to the creditor with a “cease and desist” letter.

If the violation involved something more than directly contacting the Debtor, though, I may alter step two. For example, if the creditor has contacted neighbors or co-workers of the Debtor to attempt to collect the debt, then the cease and desist letter would also demand monetary compensation for the Debtor. If the creditor persists, then litigation is warranted.

Now, one reason to take the approach I outlined is that the scope of damages ranges from only actual damages all the way to punitive damages. If the violation is one where a mistake was made by the creditor and then timely rectified, the court is unlikely to award punitive damages. Furthermore, if they see no signs of mitigation attempts, the court may not even award all of the attorney fees. However, if the violation is egregious then the court may impose far larger monetary awards to the Debtor. So, my approach prevents needlessly mounting attorney fees while still getting the Debtors relief.

November 19, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Debt collection, Discharge, Violation | , , , , , , , , , , , , | Leave a comment

Crazy you say? Bigger garnishment may be 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.

November 5, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Debt collection, Exemptions, Garnish, garnishment, Planning, Pre-filing planning, Property (exempt, The estate | , , , , , , , , , , | Leave a comment

Post Holiday Pitfalls in Bankruptcy part 1

Certain provisions of the bankruptcy code bear special scrutiny when someone is filing bankruptcy in the weeks following the Christmas holiday season. This is because people tend to rack up higher debt during this season and tend to purchase higher priced items. Even folks struggling with a debt load find it hard to resist the lure of commercialism. They hope to still give great gifts to their children, family and friends.

The first provision to be aware of in a post-Christmas bankruptcy filing is 11 USC Sect. 522(f)(B). Ordinarily, 522(f) is the code section that allows one to strip off (turn from secured to unsecured) a debt that has household goods as collateral. However, 522(f)(B) clearly applies only to debts that were NOT purchase money security debts.  The reason this matters just after Christmas is that many large price purchases come with a purchase money security interest (PMSI) forcing you to either pay the debt or cough up the goods purchased. This can be embarrassing when you purchased a nice, large screen TV for your retired dad so he can watch the Price is Right in high-definition.

So, how do you know if a PMSI attached to you gift purchase? The only way to know for sure is if you still have the receipt and any other paperwork you signed when you bought the item. Ordinarily, regular credit cards do not involve PMSIs on their purchases, but in-store credit or store specific cards often do attach PMSIs to goods.  Your only clue that you are actually giving the creditor a security interest in the item you are buying may be when you have to sign two different places instead of just one. At some stores, the security agreement prints out on receipt paper just like the ordinary receipt which you sign whenever you make a credit purchase. Or, nowadays, you may be asked to sign an electronic signature device twice to complete the transaction.

PMSI debts do get discharged in a Chapter 7 or Chapter 13 as to your personal obligation to repay, but the security interest remains attached. So, even after the bankruptcy is over and done and you think all is well, the creditor can still show up and demand the property be surrendered to them. They cannot demand you repay them, but they do have a right to the stuff.

January 2, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Debt collection, Discharge, Exemptions, PMSI (purchase money), Property (exempt, Security interests | , , , , , , , , | Leave a comment