Garnishments are just one way that a creditor can try to collect on a judgment. If you are facing a garnishment, you should understand your options. Understanding how to stop garnishments can save you time and money. At the end of the day, bankruptcy is the most common way most people stop garnishments.
Garnishments are a scary thing. A creditor wants to take money out of your paycheck or your bank account. In Virginia, a creditor can perform either a wage garnishment or a bank garnishment. For a wage garnishment, a creditor can garnish 25% of your “disposable income,” which means they get 25% of your paycheck after deducting for requires taxes. If you are very low income, your income may be too low to be garnished; but, this is very low threshold.
For a bank garnishment, a creditor can seize all money in a bank account up to the amount of the judgment. Some funds cannot be garnished, such as social security. To stop garnishments, you have to understand who is garnishing you and what is the reason. At the end of the day, usually filing bankruptcy is the most common way to stop garnishments.
If you are being garnished, there is likely a judgment against you. Most creditors can only garnish you if there is a judgment against you; the most common exceptions to this rule are tax debt and federal student loans. Since federal student loans and taxes are owed to the government, they are given special rights to collect. A judgment could have been obtained without you ever having appeared in court or being personally presented with documents. In Virginia, a garnishment can be obtained after a creditor obtains a judgment after filing a warrant in debt.
Some individuals come into our office unsure why they are being garnished or believe they can fight the garnishment because they were never served in person. Unfortunately, in person service is usually never needed. In Virginia, the law requires that a creditor served you at your last known address. Service does not have to be in person, like you often see in the movies (i.e., someone handing you papers and saying you were served). The sheriff or process server can post the notice on the front door of your last know address or hand the papers to any adult living in your residence. If you never got the paperwork, it does not matter — it’s still valid.
On occasion we are able to vacate (reverse) a judgement on grounds that you were not given proper notice, for example, that you were served somewhere that was not your residence, but this option is rare. Additionally, even if you can get the judgment vacated, the case against you will continue and the creditor will again be able to prove that you owe the money. If the judgment was based on a valid debt, this may be a futile effort. Often, this option is not recommended unless you are a good, strong defense that will likely succeed at trial or at least give you a strong negotiating position.
Guaranteed Ways to Stop Garnishments
Whenever you get notice of a garnishment, your first instinct will be to ask: How do you stop garnishments as quickly as possible? Only two guaranteed ways exist to stop a judgment garnishment in Virginia: payoff the debt in full or file bankruptcy.
Pay the debt
If you can full pay the debt, a garnishment would stop. Creditors can only collect up to what they are owed. However, this can include interest and attorney fees, if they judgement allowed for those expenses. Depending on how old a judgment is, it may have increased dramatically due to interest. We have seen some clients with judgments subject to 30% interest! But, if you provide payment in full to the creditor, the creditor must then file to stop the garnishment. Often this is the least likely option since most garnishments happen when someone cannot afford to pay the debt in full.
Filing bankruptcy stops any and all collection activity; it is the trump card that debtors can play against handle garnishments and stop creditors from collecting. The moment you file a bankruptcy, as long as you haven’t had multiple bankruptcy cases pending within the last year, the federal court issues an order that says all creditors must immediately cease any and all collection activity. To ensure the creditor has knowledge of a bankruptcy, our office sends notice of the bankruptcy to any creditor attempting to garnish you and the court where the creditor obtained the judgment. Sometimes, we are even able to get some of the garnished funds back.
As a result, filing bankruptcy is the most common way someone stops garnishments. Even if you never considered bankruptcy before, it likely is worth a consultation with a bankruptcy attorney, if you have a garnishment pending, just so you can fully understand all your options.
When dealing with a garnishment, it is also important to know advise can vary between stopping a wage garnishment vs. stopping a bank garnishment. Stopping a wage garnishment is what most people worry about since a substantial amount of money is taken each paycheck. Bankruptcy is often the only guaranteed way to stop a garnishment. Often, we recommend bankruptcy as the only viable way to stop garnishments. Often, our clients often spend less to file bankruptcy than to pay or settle a judgment. Basically once you file bankruptcy you have a federal court order that the garnishment must stop, unless you have had a dismissed bankruptcy case in the prior 12 months.
Ways to Attempt to Stop Garnishments
There are other ways that can either potentially handle garnishments. We rarely recommend these two other options, but in certain circumstances they may help; these options are negotiate the debt or file a Homestead Deed.
Negotiate the Debt
We occasionally can recommend trying to negotiate a debt; but, creditors are less likely to negotiate after a judgment is obtained. Creditors get certain rights when they obtain a judgment, these rights include garnishments, interrogatories (getting you to answer questions under oath), etc. If the creditor is getting more through the garnishment process than you are offering, it is not very likely they will take the settlement.
File a Homestead Deed
One other option to handle garnishments related to judgments that we rarely recommend is to file a Homestead Deed, but it can serve a limited purpose. After a garnishment has been filed you will be served with the garnishment summons. On the garnishment summons, there will appear a “return date.” This date is when the judge will determine if the creditor is owed the funds or not.
A homestead deed, which is a document particular to Virginia, advises the court that you are using your exemption under Virginia Code § 34-4 to protect up to $5,000.00 (or $10,000.00 if you are over 65 or an additional $10,000 if you are disabled veteran). You must file the document in the land records. This exemption can only be used once every 8 years. This technically doesn’t stop garnishments, but it does get money returned. So basically at the return date, the court can turn over any exempt funds to you and not the creditor.
Temporary protection with long-term impact
We do not usually recommend a Homestead Deed because it offers a temporary solution. This protection is a time-restricted exemption. This means that if $3,500.00 has been garnished from your wages during the past 6 months and you file a Homestead Deed to protect the funds, then you have used the $3,500.00 to get the funds release. Following the Return Date, the creditor can just file another wage garnishment immediately and start the garnishment all over again.
Eventually, you will exhaust the the $5,000.00 protection. Using up this exemption also result in limited protections in any future bankruptcy; debtors must also use a Homestead Deed in bankruptcy to protect cash, or cash like assets. This is only a band aid and may create other problems, if you are not able to resolve the balance with the creditor (or have other issues with other creditors in the future).
This exemption basically the wildcard used in Virginia bankruptcies; using it against a garnishment when you may need to file bankruptcy is the future is poor planning. If you file this Homestead Deed for a garnishment, then you may have used up a lot of the protections that you would otherwise have during a bankruptcy case and may lose assets.
Filing for an Exemption
You may qualify for relief if the money is a protected type of funds. For example, unemployment and social security are both protected here in Virginia. The bank is suppose to monitor the account to determine if the funds could be protected, but it may not happen. Since there are so many different types of protections in Virginia, it is important to at least quickly review if any of the funds may be protected. Along with the notice of garnishment, you should also be provided with a notice of exemptions. This is the form that can explain the steps to claim exemptions and what funds could be considered exempt.
If funds are frozen, you can fill out a garnishment exemption form and prove it applies to the satisfaction of the court. Now remember, the money must be clearly traceable to protect the funds. If other money is deposited, it can be co-mingled with non-protects money and you could be limited in your protections. Similar to the Homestead Deed, this not a process to stop garnishments, but have funds returned to you, if they were taken, but protected.
Moving Bank Accounts
While moving your bank account will not actually stop a bank account garnishment, it will limit how much a creditor gets. Stopping a bank account garnishment in Virginia can happen in the ways explained above, but the benefits is you can change where you bank. For example, if you get a bank garnishment summons for your bank account at Wells Fargo, if you open up a new bank account at TD Bank, you will be able to reroute your direct deposit and have access to bank account. While it may be difficult to get any funds released that were being held at the moment the garnishment hit, it will ensure you do not lose any more money until the garnishment is over. Bank garnishments are designed to hit all bank accounts at once at one institution here in Virginia.
Impact of Garnishments on Jobs/Income
A garnishment can take up to 25% of your after tax/disposable income from your paycheck. Now, if you have multiple creditors trying to garnish you at the same time, only one can be taking money out of your check at any given time. The second (or third) garnishment just waits in line until the first garnishment ends (either because the debt is paid off or the time period has lapsed).
Now many individuals facing wage garnishments are concerned about possibly being terminated for the garnishment; the law prohibits an employer for firing or terminating an employee because he/she is garnished for one debt. However, if the employee has three or more pending garnishments at the same time, then it can be considered cause for termination.
Other Options to Stop Garnishments for Federal Debts
Sometimes there are specific ways to handle garnishments for specific debts like federal student loans or tax debts. Since these debts do not require a court order to have a garnishment, different rules will apply.
Federal Student Loan Garnishments
if you have delinquent student loans, you way be able to rehabilitate them or consolidate them. Both of these options are a only a available once. If you use one of these options and then default again, you will not have the option available to you again. A rehabilitation is when you make nine on-time payments — within 20 days of the due date — over a 10-month period. To start the loan rehabilitation process, you must contact your loan servicer. Your loan servicer will establish a reasonable payment based on your financial situation, it can be as low as $5.00.
After your rehabilitation, your student loans are considered in good standing and you may enter into an income based repayment program. Another option for getting out of default is to consolidate your defaulted federal student loan into a Direct Consolidation Loan. Loan consolidation allows you to pay off one or more federal student loans with a new consolidation loan. It basically means you are bringing all your student loans together into one loan.
Stopping IRS Tax Garnishments
An IRS garnishment can be extreme amount; it is not a set percentage. The amount garnished is usually based on filing status, number of dependents and how often you are paid. The IRS will release a garnishment (they refer to garnishments as levies) upon showing hardship and getting into a payment plan. The IRS may allow for a payment plan, if your situation qualifies for one.
There are usually three options for payment plan: 1) streamline payment; 2) payment plan based on finances: or 3) current not collectible. The streamline payment is basically where you can afford to pay back the debt within the remaining time period the IRS has to collect, up-to a six years. If that is not feasible, the IRS may allow a payment plan based on your current finances. However, not all expenses may be allowable; there are very specific guidelines about what is considered a necessary expense.
Finally, if you financial situation is exceptionally difficult, the IRS may allow a $0 payment plan. This means the IRS understands you current cannot pay anything. It is referred to as current not collectible (CNC).
Additionally, the IRS may release a bank garnishment if you can prove that money is necessary for survival, i.e., rent or mortgage payment, only money for food, etc. However, they will want substantial evidence of the hardship. They also will require a entering into a repayment status (even if it is a zero dollar payment plan).
In addition to the options above, you could also submit an Offer in Compromise. This is the often referenced pennies on the dollar type settlement that you see on TV. This can be a great way to settle a debt but often requires significant amount of documents and analysis. To put together a full package and review the situation, it can take days or even weeks. While this may be a longer term solution, it is not usually the quickest way to stop a garnishment.
Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients manage various types of debts for years. Ashley focuses on helping her clients finding the ideals solution to their debt problems. Ashley reviews each person’s personal situation to determine his/her best options. She regularly helps clients handle stop garnishments and other collection activity.