Will a Bankruptcy Stop a Garnishment Bank Levy or Home Foreclosure?

Can Bankruptcy Stop a Garnishment Bank Levy or Home Foreclosure?

The good news is, bankruptcy can protect you from bank levies, wage garnishments, and even home foreclosure.

If you face any of these problems, it’s worth considering bankruptcy. When you file a bankruptcy, the automatic stay prevents creditors from collecting on your debts while the bankruptcy is pending. The automatic stay takes effect once an individual declares bankruptcy by filing a bankruptcy petition; after this occurs an automatic injunction is put in place that keeps all creditors from taking any action to collect a debt without leave from the court.

What Is a Bank Levy?

A bank levy allows a creditor to freeze your bank accounts and use the money in those accounts to pay off debts.

What Is Wage Garnishment?

Garnishment allows a creditor to demand that a portion of your paycheck gets sent to them until your debt is paid. In Minnesota, most creditors need to first obtain a court order allowing the garnishment, but can then collect the debt directly from your paycheck. There are limitations to the amount they can take at a given time – statute allows a creditor to garnish the lesser of 25% of your disposable (post-tax) earnings or the amount by which your weekly disposable earnings exceed a 40-hour paycheck at minimum wage.

For example, if you earn $1000 per week but only receive $800 after-tax, garnishment would allow a creditor to directly take either: (1) 25% of your disposable income, or in this case $200, or (2) the difference between 40 hours at $10/hour (MN minimum wage) and your pay, which is, in this case, $400. Because the garnishment statute forces a creditor to take the lesser of these two, they would garnish 25% of your disposable income.

What Is Foreclosure?

If you’re a homeowner and you fail to pay your mortgage or fall behind on payments, the lender often will follow the home foreclosure process according to state law. Federal mortgage servicing laws require in most cases that an individual be more than 120 days delinquent on the loan before a foreclosure can begin. Typically speaking, creditors will wait this time period before sending a letter of default, although they can send it earlier. After receiving notice of default, the next step is for the creditor to force sale of the property through a Sheriff’s Sale. The lender is essentially attempting to sell your home and recoup mortgage balance. Even after that, a lender may seek a deficiency judgment from the court if proceeds from the sale do not cover the entirety of the mortgage. In Minnesota, after a Sheriff’s Sale of a personal residence, the borrower typically has a Right of Redemption for 6 months, during which time the borrower can pay back the entire amount owed to the creditor, plus interest, fees, and costs, in order to repurchase their own home.

How to Stop Garnishment Bank Levy and Home Foreclosure

Chapter 7 and Chapter 13 are different forms of personal bankruptcy. Upon filing a Chapter 7 or Chapter 13 bankruptcy, the debtor receives the benefit of an automatic stay order, which prevents the collection of all debts. This includes phone calls, letters, and emails, as well as more drastic measures like wage garnishment, bank levies, foreclosure, and other law suits.

Chapter 7

Please note that filing for Chapter 7 bankruptcy will keep creditors from collecting on certain debts – credit card debt and medical bills being the most common. However, the automatic stay and eventual bankruptcy (if granted) will generally not exempt you from paying off alimony, child support, or student loans.

You can also file for Chapter 7 to delay a home foreclosure. If your home is scheduled for foreclosure and you decide to file for bankruptcy, the sale process will be postponed while your case is pending. Pending cases usually take three to four months before debts are discharged.

Chapter 13

Filing for Chapter 13 bankruptcy may be a better option if you want to stay in your home, and don’t qualify for a Chapter 7. Chapter 13 bankruptcy is often used in cases where a debtor cannot catch up on mortgage payments before a creditor begins the foreclosure process.

Chapter 13 allows you to keep your home as long as you agree to a payment plan and have enough stable income to pay off your current mortgage payment and your debt.

If you make all required payments required in your Chapter 13 repayment plan, you’ll keep your home and avoid foreclosure, as well as keeping creditors from levying your bank account and garnishing your paychecks.

Final Thoughts

If you’re in over your head with debt and cannot find a feasible way to pay off the money you owe, bankruptcy is worth consideration. Filing for bankruptcy can stop creditors from harassing you daily and, at a minimum, delay the possibility of wage garnishments, bank levies, and home foreclosure.