When you cannot pay your debts, some of your creditors may seek to garnish your wages, receiving a portion of your paycheck before you get it. Though Colorado has not created its own garnishment limitations, federal law places some limits on what your creditors can do. Additionally, bankruptcy can discharge some of your debts and stop the garnishments.
Creditors cannot begin garnishing your wages without going through a court process first. Your creditor must sue you in court and provide you with notice of the lawsuit. This suit is your chance to dispute the debt itself, so you can fight the case in court if you do not owe the debt. However, if your creditor is successful, the court will enter a judgment against you. Your creditor can ask permission from the court to garnish your wages to get the money you owe. If permission is given, a garnishment order will be sent to your employer requiring him to take the garnishment amount out of your pay before giving you the remainder of your check.
Federal law does not allow your creditors to take any more than 25 percent of your wages under most circumstances. If your weekly wage, after taxes, is greater than the current minimum wage times 30, a garnishment order cannot take more than the lesser of 25 percent or the amount you make over 30 times the minimum wage. However, child and spousal support payments do not fall under these rules -- up to 60 percent of your pay can be garnished for support obligations. This amount is reduced to 50 percent if you have another child or spouse to support, but the court can take more if you are more than 12 weeks behind in your payments.
Bankruptcy may be an attractive option if you are facing wage garnishments. Bankruptcy is a federal process in which some of your debts are discharged, or erased, if you follow proper bankruptcy procedures. As soon as you file a bankruptcy case, an automatic stay goes into effect to stop most debt collection efforts, including garnishment. Thus, your employer must stop sending money to your creditor and your creditor must stop accepting that money. Your creditor even has to return money to you or the bankruptcy court if it took the money after your case was filed. You must meet certain income qualifications to file for Chapter 7 bankruptcy, the type of bankruptcy in which some of your assets may be sold to pay your debts before others are discharged. If you do not qualify for Chapter 7 bankruptcy, you can file under Chapter 13 if you have a steady income. Chapter 13 bankruptcy restructures your debts under a three- or five-year repayment plan.
Dischargeable Vs. Non-Dischargeable
Not all debts are dischargeable in bankruptcy, and the automatic stay does not stop all wage garnishments. For example, garnishment for child support payments and past-due child support still continue even after you file for bankruptcy. However, other types of garnishments do cease because of the automatic stay even if the underlying debt is not dischargeable in bankruptcy. If your creditor or employer improperly takes your wages after your automatic stay is filed, they could be sued for violating federal bankruptcy laws.