Garnishments and Bankruptcy: How Filing Can Protect Your Income in Mississippi

Opening your paycheck only to find a significant portion missing is a distressing experience. For many residents on the Mississippi Gulf Coast, wage garnishment is the tipping point that turns a difficult financial situation into an impossible one. When a creditor takes a slice of your earnings before you even see them, paying for rent, groceries, and utilities becomes a monthly struggle. This legal seizure of income is often the final step in a long collection process, but it does not have to be permanent.

The Legal Mechanics of Wage Garnishment in Mississippi

Wage garnishment does not happen overnight. In Mississippi, a creditor generally must first sue you in court and obtain a money judgment. This judgment acts as a judicial declaration that you owe a specific debt. Once the creditor has this judgment, they can apply for a writ of garnishment. This court order is sent directly to your employer, legally requiring them to withhold a portion of your earnings and send it directly to the court or the creditor.

It is important to note that your employer is typically legally bound to comply with this order. They cannot simply choose not to garnish your wages out of kindness. If they fail to withhold the funds, the employer could become liable for the debt itself. This places your workplace in an uncomfortable position and often adds professional embarrassment to your financial stress.

Common types of debts that lead to garnishment include:

• Credit card balances and personal loans
• Medical bills from hospitals or private providers
• Deficiency balances from vehicle repossessions
• Unpaid rent or lease breakage fees

The Immediate Impact of the Automatic Stay

The most powerful tool available to a debtor facing garnishment is the automatic stay. This is a federal injunction that goes into effect the moment a bankruptcy petition is filed with the court. It functions as a legal shield, prohibiting creditors from continuing any collection activities against the debtor or their property.

The automatic stay stops the following actions:

• Wage Garnishments: Employers must stop withholding funds from your paycheck immediately upon receiving notice of the bankruptcy filing.
• Bank Levies: Creditors must cease attempts to freeze or seize funds in your bank accounts.
• Lawsuits: Any ongoing litigation regarding the debt is paused.
• Collection Calls: Creditors are legally barred from contacting you to demand payment.

Because the stay is automatic, there is no hearing required to put it in place. The mere act of filing the case triggers the protection. However, speed is essential. If a payroll department has already processed the payroll for the week, it may be too late to stop that specific check, although future deductions will cease.

Chapter 7 Bankruptcy and Eliminating the Underlying Debt

Chapter 7 bankruptcy, often referred to as liquidation, is designed to wipe out unsecured debts. When you file for Chapter 7, the goal is to obtain a discharge. A discharge is a court order that permanently eliminates your legal obligation to pay back qualifying debts.

How Chapter 7 addresses garnishment:

• Stops the Deduction: The automatic stay halts the garnishment immediately.
• Discharges the Judgment: The underlying debt that caused the garnishment is usually discharged.
• Removes the Lien: While the judgment itself might remain a matter of public record, the creditor’s ability to enforce it against you is removed.

If the debt driving the garnishment is an unsecured debt like a credit card or medical bill, Chapter 7 is often the most direct path to relief. Once the discharge is entered, the creditor can never garnish your wages for that specific debt again. It provides a clean break and allows you to keep your full paycheck moving forward.

Chapter 13 Bankruptcy as a Tool for Repayment

For some individuals, Chapter 7 may not be an option due to income levels or the desire to protect non-exempt assets. In these cases, Chapter 13 bankruptcy offers a structured solution. Chapter 13 involves creating a repayment plan that lasts between three and five years.

In a Chapter 13 case:

• The garnishment stops just as it does in Chapter 7.
• The debt that was being garnished is included in your repayment plan.
• You pay the creditor back through the trustee, often at a reduced percentage, or in full over time, depending on your disposable income.
• The remaining balance on unsecured debts is discharged at the end of the plan.

Chapter 13 is particularly useful if you are dealing with non-dischargeable debts that are being garnished, such as certain tax obligations or domestic support arrears. The plan allows you to catch up on these obligations in an organized manner without the threat of a surprise levy on your income.

Recovering Wages That Have Already Been Garnished

A common question involves the money that has already been taken. In many instances, the money garnished prior to filing is lost. However, the bankruptcy code includes a provision that may allow a debtor to recover some of those funds under specific circumstances. This is known as a preference action.

Requirements to potentially recover garnished wages:

• Amount: The total amount garnished must exceed $600.
• Timing: The garnishment must have occurred within the 90-day period immediately preceding the bankruptcy filing.
• Exemption: You must be able to claim those funds as exempt property under Mississippi law.

If these conditions are met, the bankruptcy trustee or your attorney may be able to demand the return of those funds from the creditor. This is because the law views those payments as “preferential” treatment of one creditor over others. Recovering these funds can provide a much-needed financial cushion as you begin your fresh start.

Mississippi Exemptions and Protecting Your Income

Mississippi law provides specific exemptions that protect a debtor’s property from being seized by creditors or the bankruptcy trustee. When it comes to income, the state follows federal guidelines, which limit how much a creditor can garnish, but bankruptcy exemptions go further in protecting the assets you have.

Key concepts regarding income protection:

• Tangible Personal Property: Mississippi allows you to exempt up to $10,000 in personal property. This can arguably be applied to cash on hand or money in a bank account that represents wages, provided it does not exceed the limit when combined with other claimed items.
• Head of Family: State law provides specific protections for the wages of a “head of family,” though these are asserted in state court. In bankruptcy, we utilize the exemption schedule to protect your assets from liquidation.
• Wildcard Exemption: Residents over age 70 may have an increased exemption limit, offering greater protection for their savings and income.

Properly applying these exemptions is the primary duty of your legal counsel. The goal is to ensure that while you are relieved of your debts, you do not lose the assets and income necessary to maintain your household.

The Difference Between Wage Garnishment and Bank Levies

While often discussed together, wage garnishments and bank levies are distinct collection methods. A wage garnishment intercepts money from your employer before it reaches you. A bank levy freezes and seizes money that is already sitting in your bank account.

Key differences:

• Notice: You often receive notice of a wage garnishment before it starts. Bank levies can happen without warning, causing checks to bounce and automatic payments to fail.
• Scope: Wage garnishment is limited to a percentage of your disposable earnings. A bank levy can typically take every penny in the account up to the amount of the judgment.
• Frequency: Wage garnishment is continuous until the debt is paid. A bank levy is usually a one-time event, though the creditor can request it multiple times.

Bankruptcy stops both actions. If your bank account has been frozen, filing for bankruptcy often requires the bank to release the hold, granting you access to your funds again.

Judgments and Liens on Real Property

A judgment does more than just allow for garnishment; it also creates a lien on your property in the county where the judgment is enrolled. If you own a home, this judgment lien attaches to the equity in your house. This means that if you try to sell or refinance your home, the judgment must be paid from the proceeds.

Handling judgment liens in bankruptcy:

• Judgment Avoidance: In bankruptcy, it is possible to file a motion to “avoid” a judicial lien.
• Impairment of Exemption: If the lien impairs your homestead exemption—meaning there is not enough equity to pay the lien and give you the exemption amount you are entitled to—the court can remove the lien entirely.

This step is not automatic. It requires a specific motion to be filed with the bankruptcy court. Successfully avoiding a lien turns a secured judgment back into an unsecured debt, which is then discharged along with your other obligations.

Non-Dischargeable Debts and Garnishments

Not all debts can be wiped out in bankruptcy. Consequently, not all garnishments stop permanently, though the automatic stay provides temporary relief. It is vital to identify which category your debt falls into before filing.

Examples of debts that typically survive Chapter 7:

• Domestic Support Obligations: Child support and alimony are high-priority debts. Bankruptcy will not discharge them, and garnishments for current support generally continue.
• Certain Taxes: Recent income taxes are often non-dischargeable.
• Student Loans: These are rarely discharged without a separate, difficult lawsuit proving “undue hardship.”
• Criminal Restitution: Court-ordered payments for crimes cannot be discharged.

In these situations, Chapter 13 is often the superior choice. It allows you to manage these non-dischargeable debts through the repayment plan, preventing the creditor from seizing your wages and giving you up to five years to pay off the priority portion of the debt.

The Procedure to Stop Garnishment After Filing

Filing the bankruptcy petition is the legal trigger that stops garnishment, but the practical application involves notifying the relevant parties. The payroll department at your job operates on a schedule, and they require proof that the stay is in effect before they can legally stop withholding funds.

The notification process typically involves:

• Filing the Case: We submit your petition to the court and receive a case number immediately.
• Suggestion of Bankruptcy: We prepare a document called a “Suggestion of Bankruptcy.”
• Notifying the Sheriff/Court: This document is filed in the state court where the judgment was issued, alerting the clerk and the Sheriff’s office to stop the writ of garnishment.
• Notifying the Employer: We send a copy of the bankruptcy filing notice and the Suggestion of Bankruptcy directly to your payroll department.

Communication is key. Until your employer receives official notice, they may continue to garnish your wages. We work to ensure this notification happens as rapidly as possible to preserve your income.

Protecting Your Employment Status

Many clients worry that filing for bankruptcy or having their wages garnished will cost them their jobs. Federal law offers specific protections in this area. Under the Consumer Credit Protection Act, an employer is prohibited from firing an employee solely because their wages are being garnished for any one debt.

Furthermore, the bankruptcy code prohibits strictly private employers from terminating an individual’s employment solely because they filed for bankruptcy. While Mississippi is an at-will employment state, these federal protections provide a layer of security for workers seeking to resolve their financial issues legally.

Strategic Timing for Filing Bankruptcy

Deciding when to file is a strategic choice. If you have been served with a lawsuit but a judgment has not yet been entered, filing immediately can prevent the judgment from ever existing. This keeps your record cleaner and avoids the creation of a lien on your property.

If garnishment has already begun, filing sooner rather than later preserves more of your income. Every paycheck that is garnished is money that is likely gone forever unless you meet the strict requirements for a preference action. Waiting “to see what happens” often results in the unnecessary loss of substantial income.

Dealing with Government Garnishments

Garnishments by government entities, such as the IRS or the Department of Education for federal student loans, operate under different rules. They often do not require a court judgment to begin seizing wages.

• IRS Levies: The IRS has broad powers to levy wages and bank accounts. Filing bankruptcy creates an automatic stay that generally stops IRS collection actions. This provides a window to determine if the taxes are dischargeable or to set up a repayment plan in Chapter 13.
• Student Loans: An administrative wage garnishment for federal student loans is also halted by the automatic stay. While the debt itself may remain, the pause in collection allows you to rehabilitate the loan or enter an income-driven repayment plan outside of bankruptcy.

Why Professional Guidance Matters

The laws governing garnishment, exemptions, and bankruptcy are complex and intertwined. A mistake in the filing process or a failure to properly claim an exemption can result in the loss of property or the continuation of collection efforts. If you are facing wage garnishment or struggling with unmanageable debt, you do not have to face it alone. Contact a Gulf Coast Bankruptcy Attorney today for a consultation. We can review your specific situation, explain your options under the law, and help you take the necessary steps to protect your income and your future.