Every Chapter 13 debtor must propose a plan for repaying his debts known as the Chapter 13 plan. The Chapter 13 plan must allocate 100% of the debtor’s monthly net disposable income for payment to creditors unless all general unsecured creditors will be paid 100% of what they are owed. In most Chapter 13 cases, the repayment plan must propose for the plan payments to be made via income deduction. An income deduction order requires the debtor’s employer to deduct the Chapter 13 plan payments from the debtor’s pay each pay period.
Unlike a garnishment order, an income deduction order is not subject to the Consumer Credit Protection Act which limits the amount that may be garnished from an employee’s paycheck to 25% of disposable income (50% if the garnishment is for child support). Certain wage garnishment exemptions may protect a debtor from a garnishment including:
Under the Bankruptcy Code, for purposes of determining the amount of the Chapter 13 plan payments, the debtor must disclose his income and assets. The following are excluded from the calculations to determine the debtor’s disposable income:
Repayment of pension loans and pension contributions.
If a Chapter 13 debtor is retired or self-employed, an income deduction order is not required. The debtor, however, will be responsible for making the Chapter 13 plan payments on time each month.
When a debtor files bankruptcy, the automatic stay prevents creditors from making any type of collection effort against the debtor, including garnishment. A creditor may not resume garnishment until it receives relief from the automatic stay or until the bankruptcy case has been dismissed.
The Consumer Credit Protection Act allows government agencies and certain student loan servicers to garnish wages without first obtaining a judgment. Garnishments for taxes, student loans, and other debts owed to governmental entities are stayed once a debtor files bankruptcy.
If you have received a notice of garnishment, do not ignore it. Contact an experienced debt settlement attorney who can assist you in negotiating a settlement or payment plan with the creditor. If negotiations fail, bankruptcy may be a viable option. A debt settlement attorney can explain to you how the bankruptcy process works and help you decide whether bankruptcy is the best option for you.