Wage garnishment is the process employed when a creditor seizes money from your paycheck in order to satisfy payment of a debt. In Texas, most creditors don’t have the right to garnish your wages, but there are three important exceptions. First, student loan creditors have the right to garnish wages when the borrower has defaulted on their student loans. Second, the Attorney General may garnish your wages to collect child support, alimony payments or other types of domestic support obligations. This rule applies to current domestic support obligations and arrears. Finally, the Internal Revenue Service can garnish your wages in order to collect unpaid taxes.
Chapter 13 bankruptcy will stop wage garnishment in all of these situations with the exception of garnishment for an ongoing domestic support obligation. In Chapter 13 bankruptcy, federal income taxes and child support arrears must be paid as part of a three to five year plan which reorganizes the debts. This plan may allow the debtor to increase the amount of time allowed to pay the debt and reduce the monthly payment amount to something less than would have been paid through a garnishment. Student loans are generally deferred until after the bankruptcy case is completed, but if there is money to pay to unsecured creditors then the student loan creditors have the option of getting paid a portion or their entire claim in the Chapter 13 plan, depending on how much is available to these types of creditors.
Chapter 13 bankruptcy may or may not be a good option for repaying these three types of debts. The majority of people I meet with who are struggling with wage garnishment benefit from filing Chapter 13 bankruptcy, but not all. Before filing bankruptcy to stop a wage garnishment it is a good idea to speak with a bankruptcy attorney about your specific situation and to carefully evaluate your projected income, budget, and the costs associated with filing bankruptcy.