The second we file your bankruptcy petition, the court issues a “protective order” that requires all of your creditors to stop any collection action. That includes lawsuits, foreclosures, and repossessions. It also includes garnishments, whether it’s your paycheck or bank account.
While the good news is that bankruptcy will stop your garnishments, the not so good news is that if you’ve been garnished within the 90 days before we file your petition, other issues could come up. If the bankruptcy trustee chooses, he can ask the garnishing creditor to cough up the money they got in the last 90 days. If he does, he’ll give distribute the money to all of your creditors on a pro rata basis. What that means is that now you’ve got an “asset” case on your hands.
At that point the trustee will start digging to see if there are any non-exempt (unprotected) assets that he can get (or have you pay a cash equivalent for) to settle your bankruptcy estate. Typical things he might want are the non-exempt portion of any wages you were due when your case was filed or property you own that isn’t protected (firearms are a common asset trustees are interested in in Colorado, since they’re unprotected). While the trustee might not normally want small amounts, now that he has opened an asset case, he will be on the lookout for even the smallest amounts.
Before we file your petition, we’ll ask whether or not you’ve been garnished in the last 90 days. If so, we’ll talk with you more about the timing of when to file your petition to make sure that the trustee can get as little of your non-exempt wages as possible. We’ll also review your list of assets to see if you own any unprotected property. While you can pay the trustee a negotiated cash amount for that property, another option would be to sell the property (for fair market value, preferably to a non-relative) before we file. By reviewing your petition thoroughly, we can make sure you exit the Chapter 7 bankruptcy process with as much of your property still in your hands.
If you are considering bankruptcy because your paycheck or bank account is being garnished, we hope you’ll come in for a free, no-obligation consultation with an experienced Colorado bankruptcy lawyer. You can schedule an appointment using our online scheduling system or call 303.331.3403 to set a time that is convenient for you.