Tag Archives: garnishment

“Automatic” Protection from Your Creditors

Leave a reply

9301721438_21b25771be_z“Automatic” protection from your creditors is what you get as soon as you file for bankruptcy.

Many bankruptcy attorney ads say: “Stop garnishments.” “Stop foreclosures.” “Stop repossessions.” So bankruptcy stops all those bad things. But is it as good as it sounds? How does it really work?

The most basic protection that bankruptcy provides is the immediate protection that it gives you, your paycheck, your home, and your possessions. You get this protection the minute a bankruptcy is filed for you. Other than some rare exceptions, all collection efforts by creditors against you or your property must come to an immediate stop. You’ll hear this referred to as the “automatic stay.”

“Stay” is just a legal word for “stop” or “freeze.” “Automatic” means that this “stay” goes into effect right when your bankruptcy petition gets filed. That filing itself “operates as a stay” of virtually all creditors’ actions to pursue a debt or grab collateral.

But your creditors need to know that you filed for bankruptcy so that they can abide by the stay. If your creditors are all listed in your bankruptcy paperwork, they should all get informed by the bankruptcy court within about a week or so after your case is filed, without any additional action by either you or your attorney. If you are not anticipating any action against you by any of your creditors sooner than that, usually letting the court inform them of your bankruptcy is good enough. But if do expect some quick creditor action, be sure to talk with your attorney about it so you’re both on the same page about informing that creditor sooner.

But what if a creditor unexpectedly takes some action in the days after your bankruptcy is filed but before it finds out about it? The automatic stay is so powerful that if this does happen, the creditor must undo whatever action it took against you, even if it did not know about your bankruptcy filing. So if after your bankruptcy is filed, a creditor, for example, files a lawsuit against you or turns its earlier lawsuit into a judgment, that lawsuit must be dismissed or the judgment must be set aside.

If you are in New Jersey and you are having problems with debt, call me at (201) 676-0722 for a consultation, or email me at weilattorney@gmail.com.

Photo credit: Next TwentyEight

Be sure you file bankruptcy at the right time

Leave a reply

Sometimes the timing of your bankruptcy filing hardly matters, but other times it’s huge. The two examples in this post should convince you that you do not want to be rushed to file because a creditor got a judgment against you is now garnishing your wages. Since the timing of your bankruptcy filing can be a strategic decision, you should preserve the ability to file bankruptcy at a time that’s best for you.

1. Choosing between Chapter 7 and 13:  Being able to file a Chapter 7 generally requires you to pass the means test. This test largely turns on a very special definition of “income.” For many people, means test income can change every month. So you may not qualify to file a Chapter 7 one month but maybe you can the next month. Being able to delay filing means being able to file when you are likelier to pass the means test and not be forced into a Chapter 13. Chapter 7 cases are usually shorter and normally cost less than Chapter 13 cases.

2. Discharging debts:  Getting certain debts discharged can be more difficult if you incurred them within a certain amount of time before your bankruptcy case was filed. Delaying the filing of your case makes it less likely that the dischargeability of one of these debts would be successfully challenged. If a creditor is successful in challenging the dischargeability of a debt, you would still owe the debt, possibly along with the creditor’s costs and attorney fees and your attorney’s fees.

If you get sued, what do you do to avoid getting a judgment against you, so that you’re not rushed into filing bankruptcy at a bad time? See a bankruptcy attorney as soon as possible. The earlier you get advice, the more options you will have.

Photo by: mao_lini.

Is a Creditor Getting a Judgment Against You?

15 Replies

If you have a judgement against you from a creditor, it can hurt you. Judgments can hurt in three ways:  1) They allow the creditor to use powerful collection tools against you; 2) A judgment can make you rush into bankruptcy at a bad time; and 3) Under some circumstances, a judgment can make it harder to discharge the debt in your bankruptcy.  This post addresses only the first of these three.

Most creditor and collection-agency lawsuits for debt collection result in judgments against those who owe the debts. That’s because the reason for debt collection suits is to legally establish that the debt is owed, which is usually not in dispute. Also, much of the time the debtors are at the ends of their financial ropes and can’t afford an attorney to find out their options or to defend the lawsuit. So judgments are entered “by default”—meaning the deadline for the debtors to respond passed without any action by them, allowing the creditor to get a judgment. Sometimes debtors do not receive notice that a judgment has been entered against them or they receive notice and do not recognize it for what it is. Thus, many debtors do not realize there are judgments against them, especially when nothing apparently happens for months or even years afterwards. And very few people are fully aware of the possible consequences.

Most people know that a judgment gives a creditor the power to garnish wages and/or to levy against bank accounts. But preventing garnishments by keeping your bank account empty and by not being paid a regular wage often are not enough to make you “judgment proof.” For example, a judgment usually becomes a lien against any real estate you own now or will own in the future. That includes not only property held in your own name but also your rights to property held jointly with a spouse, parent, or through a trust or estate. A creditor has other tools available, including getting a judge to order you to answer questions under oath, in writing, about what you own – in New Jersey, this is called an “information subpoena”.

Beyond the direct damage a creditor with a judgment can do to you before you file your case, such a creditor can cause you problems in your bankruptcy case.

If you file bankruptcy quickly to stop a garnishment or other collection activity, you lose one of your most important advantages: the timing of your bankruptcy filing. Much of what happens in your bankruptcy case turns on exactly when it was filed. Not having the flexibility to pick the best timing can, among other things, turn a Chapter 7 into a Chapter 13, can mean a difference of many thousands of dollars, and can turn a straightforward case that meets your goals into a more complicated matter.

The lesson here is, whenever possible, take the time to see a bankruptcy attorney if you have overall financial problems, particularly if you are being sued. Try not to wait until after a judgment has been entered against you.

Photo by Dennis Wong.

When a bankruptcy filing does NOT stop collection actions

Leave a reply

Your bankruptcy filing can stop all your creditors’ collection actions against you. Or can it?

Isn’t a bankruptcy filing supposed to stop all your creditors’ collection efforts against you and your property? Yes, and in fact in many cases a bankruptcy filing does exactly that. Stopping collection efforts is a benefit of filing bankruptcy called the “automatic stay,” because at the moment of the bankruptcy filing, a legal injunction automatically goes into effect “staying,” or stopping, most creditors’ actions against you. But because the automatic stay is something we count on, we had better know its exceptions.

Today I’m just going to list some of the most important exceptions. Then in the next couple of posts I will explain in practical terms these and other important aspects of the automatic stay.

So creditors CAN do the following in spite of your bankruptcy filing:

1) A district attorney or other governmental authority can begin or continue a criminal case against you, such as an indictment, a criminal trial, or a sentencing hearing. This includes not just felonies and misdemeanors, but also lesser matters like traffic infractions that you might not think of as “criminal.”

2) Your ex-spouse, or about-to-be ex-spouse, or somebody on his or her behalf, can start or continue a variety of divorce and family court proceedings. These include legal procedures to establish paternity of a child, determine or change the amount of child or spousal support to be paid, settle child custody or visitation issues, address domestic violence disputes, and even dissolve the marriage. (Although a marriage dissolution usually cannot include a determination about how assets or debts would be divided between the spouses.)

3) Specifically about child or spousal support, the person owed ongoing support can continue collecting it. If there is back support owed, then in spite of a Chapter 7 filing, the person who is owed the support can in most cases start or continue collecting it. This includes not only collection through wage withholdings and garnishment of bank accounts, but also through seizure of a tax refund and suspension of a driver’s license, an occupational or professional license, or even a hunting or other recreational license. In contrast, a Chapter 13 filing can stop these aggressive methods of collecting back support.

4) Taxing authorities can start or finish a tax audit, can send you a notice that you owe taxes, can demand you to file your tax returns, can assess your taxes and demand you to pay them, and in some situations can even file tax liens against you and your property.

Notice that each of these exceptions involves a special kind of creditor. As I said, the automatic stay stops actions against you by most creditors. But if you are involved in a court proceeding or collection efforts by the criminal or taxing authorities, or by an ex-spouse, be especially aware of these exceptions.

 
Photo by I am marlon.

Tip income can’t necessarily be garnished in New Jersey

Leave a reply

I have to admit, I picked this case for this post mainly because of its cool name, Big M, Inc. t/a Annie Sez v. Texas Roadhouse Holding, LLC. But it also has something interesting to say about debt collection.

The New Jersey Supreme Court decided Big M on July 16, 2010. The issue in the case was whether tips and gratuities are subject to garnishment. As you may recall, a garnishment can happen when a debt collector who has a judgment against you gets a court order to take part of your pay to satisfy the judgment.

Big M involved a waitress working for Texas Roadhouse Holding, LLC whose wages were being garnished. When her creditor, Big M, got a check for only $4.21 from its $672 wage garnishment, it sued her employer. In the course of deciding the case, the trial court judge determined that tips placed on credit cards are garnishable, but cash tips are not. Then the New Jersey Supreme Court considered the case on appeal.

Looking at both New Jersey law and the Federal Consumer Credit Protection Act (CCPA), the court did not find any law directly speaking to the issue of whether tips were subject to garnishment. So it examined an opinion letter and field operations handbook from the Department of Labor, which enforces the CCPA, and found the opinion that tips, whether paid in cash or charged, are not subject to garnishment. Although the New Jersey Supreme Court is not required to follow a Department of Labor opinion, the court chose to give the opinion consideration and deference.

Big M, the creditor, argued that all tips should be subject to garnishment because they are taxable income for state and federal tax purposes. The court did not find this argument persuasive because the process of counting and recording tip income and reporting it for tax purposes does not allow the employer to exercise enough control over tip income to make it garnishable. The whole idea behind wage garnishment is to capture the income while it is still in the employer’s hands, before it gets paid to the employee.

The court held that the amount of control an employer exercises over tip income determines whether those tips are subject to wage garnishment. If the employer pools all the tips and then divides the pooled amount amongst the employees, then tip income could be garnished. But if the tips are generally paid directly to the employee, even if the tips are charged on a credit card, they are not subject to garnishment.

Photo by respres.