If you have found yourself over your head in debt, it’s important to learn about different forms of debt collection and how they may affect you before, rather than after, they are put into action. Many creditors will need to obtain a judgment against you before proceeding with debt collection efforts. This is a court order stating that your creditor has won a lawsuit against you for a certain dollar amount. After obtaining a judgment against a debtor, one of creditors’ favorite ways to collect on that debt is through a wage garnishment. And what is beneficial for a creditor is usually devastating for a debtor. A wage garnishment means a significant portion of the debtor’s paycheck will automatically be taken and sent to the creditor until the debt, plus interest and fees, has been repaid. This can cause huge trouble for a household that likely ended up in this situation due to already not being able to afford their monthly expenses and payments on debt. Beyond the monetary damage this causes, the debtor’s employer will learn about their employee’s financial issues, which can be embarrassing. Read on to learn more about wage garnishments from an employer’s point of view in Arizona. For your free consultation with an experienced debt relief attorney from Atlas Bankruptcy Lawyers, call 602-649-4949.
What an Employer Does After Receiving a Writ of Garnishment
When a creditor obtains a judgment against a debtor, they must obtain a writ of garnishment and serve it upon the debtor’s employer before a wage garnishment can begin. After service of this notice, the employer should file a Garnishee’s Answer. There is a 10-day deadline to file this legal document in court. The employer can become liable for their employee’s debt if they don’t abide by this guideline. This still must be done, even if the employee files for bankruptcy. If the employee has filed for bankruptcy, the employer can state this in the Garnishee’s Answer. The employer should provide copies of the Garnishee’s Answer to the creditor and their employee.
If the employee has not yet filed for bankruptcy, the employer must withhold the garnishment from the employee’s paychecks. This ends when the employee files for bankruptcy, usually chapter 7 or chapter 13. The automatic stay eliminates collection efforts against the debtor, meaning the employer should stop withholding the garnishment from their paychecks. An employer cannot legally terminate an employee for receiving a writ of garnishment. However, they can legally terminate an employee if they receive a second writ of garnishment within a 12-month period. There can only be one active wage garnishment at a time, but creditors can form a queue- here, the next wage garnishment will start as soon as the first one ends.
The Automatic Stay and Wage Garnishments
Wage garnishments are a common reason that people file for bankruptcy, as the automatic stay stops most wage garnishments. It is a pause in the wage garnishment if the bankruptcy doesn’t clear the debt- if it does, the wage garnishment is ended permanently. A debtor should file their bankruptcy petition before their company does payroll- which is typically before payday- if they are concerned about a specific pay period. But there can be other factors more important to consider for some debtors than stopping the wage garnishment for one pay period, like waiting for tax debt to become old enough to become dischargeable in bankruptcy.
An important exception to the automatic stay is wage garnishments from domestic obligations, like spousal maintenance and child support. Filing for chapter 7 bankruptcy won’t clear these debts or stop a wage garnishment stemming from them. The only way to stop this type of wage garnishment is by filing for chapter 13 bankruptcy and arranging for full repayment of any amounts owed in that plan. If the debtor misses payments on their bankruptcy payment plan, the case will be dismissed, and their domestic obligation wage garnishment will resume.
Wage Garnishment Limits in Arizona
It’s already been said how impactful a wage garnishment can be on the budget of someone who is already struggling with debt and other financial issues. Just how impactful depends on the type of debt for which that person is being garnished. It should also be noted that wage garnishments are based on income after taxes, not before, making them even more detrimental. It should also be noted that a creditor can’t take more than 10% of a debtor’s disposable earnings per week, or the amount exceeding 60 times the minimum wage, whichever is lower. Otherwise, the limits on wage garnishments in Arizona are as follows:
- Federal debts, including federal student loans: Student loans are the most common type of federal debt, but the same limits apply to all federal debt wage garnishments. With 30 days’ notice, up to 15% of a debtor’s disposable earnings can be garnished from a federal debt.
- Consumer debts: These are credit cards, personal loans, and other lines of credit that an individual, or consumer, has let go into default. The standard limit for these wage garnishments is 25%, but Arizona has reduced that to 10%. Before, a debtor would need to request a hardship exception to reduce their wage garnishment to 15% if they couldn’t afford to pay a 25% garnishment.
- Domestic obligations: As mentioned above, there are restrictions in bankruptcy for domestic obligations. They can’t be cleared, only repaid in a chapter 13 plan, which is also the only type of filing to stop a domestic obligation wage garnishment. The limits for wage garnishments originating from domestic obligation debt are also much higher than for any other type of debt. If the debtor has other dependents, the maximum wage garnishment is 50%, and 60% if the debtor has no other dependents. Either can be increased by 5% if that person is more than 12 weeks behind on their payments.
Want to Avoid Involving Your Employer in Your Financial Struggles? Start the Bankruptcy Process Today.
There is a small chance that your employer will become liable for your debt if it gets to the wage garnishment phase, if they fail to file a Garnishee’s Answer promptly, but this can’t be relied upon, and would probably make you your boss’s least favorite employee. The best way to avoid your employer learning about your financial issues is to address them before your employer is served with a writ of garnishment. In many cases, bankruptcy can be a solution to this problem. Chapter 7 and chapter 13 bankruptcy provide different paths to debt relief and a clean slate, including stopping wage garnishments that can make a debtor’s financial situation so much worse. But it’s important to use these legal procedures correctly, or the debtor can face negative repercussions like the loss of assets, debts being excluded from discharge, and more. When you want your bankruptcy to go smoothly, your best bet is to retain a reputable bankruptcy firm in your area. If you’re in Phoenix or Tucson, Atlas Bankruptcy Lawyers offers free consultations by phone. Learn more about your bankruptcy options and see if you qualify for a Zero Down post-filing bankruptcy payment plan. Get started today or calling 602-649-4949.
