How Does Bankruptcy Stop a Garnishment?

Many clients come in to file bankruptcy because they are having their wages or bank accounts garnished (seized) by a creditor. In most cases filing bankruptcy will stop these actions. Bankruptcy will even temporarily stop a garnishment by the IRS, the Franchise Tax Board or a student loan collector. As a practical matter, however, it is not enough to just file the bankruptcy.

You have to also file a Notice of Stay in the local court that issued the garnishment order and notify the creditor, the creditor’s lawyer and the sheriff or other garnishing agency. Common sense will tell you if you don’t let everyone involved immediately know that you filed the bankruptcy, it will take much longer for the garnishment to stop. After the bankruptcy is filed and the parties to the garnishment are notified, only FUTURE garnishments will be stopped. What about getting back the money that was previously garnished? This is a much trickier issue. It is possible to recover this money if certain conditions are met. First of all, if the money has already been turned over to the creditor it is very difficult, if not impossible, to get it returned. This is because of a California law that gives a judgment creditor a lien on the money seized. If, however, the money is still in the hands of the bank, employer or sheriff, it may be possible to have it returned. Secondly, the money has to be exempt. If not, the money might end up just going to the bankruptcy trustee, so it would not be worth the fight to have it returned. If the money is exempt, then you can file a motion with the bankruptcy court asking the judge to order the money released and returned to you. There are a few different grounds to base the motion on, all of which require a fairly comprehensive understanding of bankruptcy law. And some judges will require you to file an adversary proceeding (lawsuit) to have the money returned rather than a motion. If you have a garnishment, it is usually best to have a competent attorney represent you in trying to stop the future garnishments and having money from prior garnishments returned.