Kentucky Bankruptcy Law

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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.

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

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