Will bankruptcy stop wage garnishment?

Dear To Her Credit, Once wages are being garnished, can bankruptcy stop the wages from being garnished any longer? -- Charlene

Dear Charlene, Your wages are being garnisheed and you're considering bankruptcy to stop it? This is a financial emergency! Wage garnishment can be devastating to people who are already struggling financially.

First, there's the embarrassment factor. It's no secret you're having money troubles when your employer gets a notice he has to withhold money from your pay to send directly to a creditor. It's more paperwork for the payroll department to comply with the garnishment, and some employers get worried when they see evidence that employees are hard up -- especially if those employees are in positions where they handle company money. Fortunately, federal law prohibits firing of employees because they are having wages garnisheed for the first time.

Second, having wages withheld for one creditor can make it harder for you to keep up on all your other bills. People in financial difficulty seldom have just one creditor clamoring for payment. The creditor doing the garnishing has essentially stepped up to the front of the line, leaving the others to compete for what's left of your paycheck.

And finally, wage garnishment can drive debtors to consider bankruptcy, even when they would not have otherwise. In this economy, many families are struggling along with perhaps only one spouse working, or with stopgap jobs they've taken until they can find something better. They may be barely hanging on, until one creditor takes a big chunk out of their weekly pay.

To answer your question, yes, bankruptcy stops garnishment. However, filing for bankruptcy can be devastating to your finances, your credit score and perhaps most important, your morale. By filing for bankruptcy, whether Chapter 7 or Chapter 13, you give away a lot of your control over your own money. Someone else makes decisions for you, including which creditors get paid first, if at all. It's time consuming, expensive and a lot of work. When it is unavoidable, for example, when a business fails or an ex-spouse leaves you with debts you cannot hope to pay off, bankruptcy can be the best solution available. Always remember, however, that bankruptcy should be your last resort.

The good news is that you can protect yourself from the most devastating effects of garnishment --without bankruptcy -- if you know the rules.

Generally, your employer cannot take more than 25 percent of your "disposable earnings" for garnishment, no matter how many creditors are clamoring for it. (Interesting term: Disposable earnings. By that, they mean net pay after taxes and other mandatory deductions, for starters, despite the fact that most of us don't think of any of our earnings as "disposable"!)

Another rule is that they cannot take more than the excess of your earnings over 30 times the federal minimum hourly wage (currently $7.25 per hour). That means $217.50 per week (30 X $7.25) is safe from any garnishment at all.

Depending on your state, you may be able to claim other living expenses as exempt from wage garnishment. Go to your small claims clerk at the courthouse, the sheriff's or marshal's office, or look online for the form used for this purpose. Wage garnishment should not take away the money you need to provide food, shelter and other basic needs to your family. After you turn in your living expenses form, the court decides how much you can afford to have garnished, if anything.

This would be a good time for you to get some outside help managing your finances and your debt. An accredited counseling agency can be a great help. They know the laws in your state and what you can do to protect your income while dealing with debt. They may be able to help you figure out how to pay off your debt or tell you if bankruptcy needs to be part of your plan. Choose a counselor from the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.