What am I missing re garnishment?

[zenbit]

I have been searching and reading for quite a long while now... so forgive me if I am missing something really obvious - which I am guessing is the case.

I make a high income (> $100k), have no assets, and tons of unsecured debt (> $80k), plus a house that I am upside down in to the tune of approx $50k.

Started working with an atty, assuming that I need to file Chapter 13 due to income. In working with the attorney and reading here - it has sounded like wage garnishment is the ultimate horror of horrors... so I wanted to be sure to understand that more.

I live in Illinois. From what I can tell - they can garnish up to 15% of my income or 45 times the minimum wage. If my income were 100k even, this seems to be between $15k and $17k a year. Is this correct? Maybe I am doing the math wrong.

I don't have the numbers in front of me at the moment, but from memory -- it seemed that my initial BK plan was looking like it would take more of my income away than that.

So my question is - what is the worst part of having wages garnished? Is it that the money seems more or less to be lost?

I get how a Chapter 13 offers a light at the end of the tunnel, which is definitely what I want anyways... but it just seems like even if they go after my wages, they can't really do too much damage. No more than what is already done, I guess.

Or am I missing something really obvious here?

[holding on]

Wage garnishment rules have nothing to do with your bankruptcy plan payments. Your BK plan is about your disposable income leftover, based on some schedules.

[zenbit]

Thanks...

Thanks for the reply - I guess I am just thinking that if they can garnish less in wages than what my BK plan will require... well, I guess there's no real rush to file... other than the obvious desire to get this all behind me some day.

It just seems that there are so many moving parts and so much to figure out - that I feel a bit overwhelmed by it all. If wage garnishment is not the end of the world, I guess it's just one more boogey man that I am facing in the light of day.

[justbroke]

Thanks for the reply - I guess I am just thinking that if they can garnish less in wages than what my BK plan will require... well, I guess there's no real rush to file... other than the obvious desire to get this all behind me some day.

Trust me... if you have high unsecured debt ($80K+) and they are going to do wage garnishment, you will be paying back with interest over a longer period of time than 5 years. Remember that $80K will blossom real quickly given interest rates and then all the legal fees they'll gladly add on once they get their judgment.

With a Chapter 13, you get instant debt relief, pay no more interest on the unsecured debt... and may even be able to pay less than 100% back (depending on your disposable monthly income).

Since you are a well-compensated employee, I'm concerned because you have no secured debt, and I can't tell if you have any dependents. This may put you into a 100% payback plan.

Even in a 100% plan with $80K in unsecured debt, your payments on that debt would be $1,333 plus the Trustee fee (10%), or about $1,500/month for 60 months. Maybe that's better than paying $1,250/month (15% garnishment per month) for... a very long time.

It just seems that there are so many moving parts and so much to figure out - that I feel a bit overwhelmed by it all. If wage garnishment is not the end of the world, I guess it's just one more boogey man that I am facing in the light of day.

You should sit down with a couple of consults on this with BK attorneys. Where is all your money going? You earn over $8K/month, have no major expenses (house, cars), and are not starving, right?

[zenbit]

Good points

Yeah, now that I have stopped paying on the unsecured debts, I am doing just fine, LOL.

I know what has had me a bit frozen - my biggest question is about what to do with the house. I agree, and appreciate your point of view. I need to face this and work with the attorney. I have just been dreading facing it, and have maybe been using the wage garnishment fear as a motivator.

In any event, I appreciate the insights - I knew there were factors I was overlooking - like length of repayment and legal fees.

I am sure I am not the only one who has found themselves holding out, wishing for some magic answer to appear to clean this mess up, but I need to get over that and move on.

[DebtEnder]

One thing to consider as well if you are a wage earner and not otherwise self employed the law does prevent an employer from terminating an employee due to garnishment. However multiple garnishments are not covered. Ie creditor A gets a garnishment he takes 15 of your net income. You stay employed. Creditor B comes along with a writ asking for a part of that 15%, payroll dept tells you your not worth the extra paperwork anymore and your out of a job.

Also notice it's 15% of net, not gross that they can garnish, something a friend of mine is dealing with as a w-9 contract worker. He's getting garnished at %15 of his entire check with nothing accounted for self employment tax, non deducted income taxes, etc etc.

[holding on]

Just don't confuse wage garnishment as a result of a judgement against you, and wage garnishment for your bk. And as the trustee told us at our 341 meeting, he is not doing a wage garnishment against us; he is doing a payroll directive (HAHAHAH!)

[Jumper]

Zenbit,...I am in a very similar situation as you,...except I don't have the house to deal with, and I have a bit more cc debt. Two very qualified BK attorneys looked at my numbers, and both advised w/o hesitation to file Chap 7, and not 13.
I would advise you to seriously look at that option before you decide.

[Jumper]

Where is all your money going? You earn over $8K/month, have no major expenses (house, cars), and are not starving, right?

In California?..are you kidding me?...I suspect that half of his after tax income is going to just paying living expenses and the other half is going to making montly CC payments...

[justbroke]

In California?..are you kidding me?...I suspect that half of his after tax income is going to just paying living expenses and the other half is going to making montly CC payments...

No, I am not kidding you at all. Besides, the OP stated that he lives in Illinois... not that his locale even affects my prior statement.

Just because you have a certain expense, doesn't make it an allowable expense, either. For example, and a perfect example, credit card payments, are not an expense when it comes to Bankruptcy. The (unsecured) credit cards are wiped out through the discharge, so there is no monthly expense for them.

As you can see from zenbit's earlier post, where he states that "now that I have stopped paying on the unsecured debts, I am doing just fine", you can see that much of his expense is unsecured debt. That is a definitely an alert for me to indicate that he (zenbit) has significant disposable income for purposes of a Bankruptcy. Disposable income isn't what you think you have at the end of the month. It's a calculation which comprises your income less your allowed expenses.

Whenever I look at a debtor in the Bankruptcy context... payments on unsecured debt (to credit cards), don't even register as "expenses", because they are not. zenbit's issue will still be, at the end of the day, his combination of high income and little expense. Remember, he indicated that he is surrendering his home, and that a lot of his expense is in unsecured debt. That leaves a bunch of money on the table to be in a Chapter 13.

It doesn't matter if you live in San Francisco, The Inland Empire, Miami Beach, Madison Avenue New York, or Podunk... expenses, expenses, expenses is what will get you a Chapter 7 discharge. That eligibility is based on a pretty rigid formula at that.

[zenbit]

I think I follow what justbroke is saying and that's where I am at... high income and minimal expenses.

In a nutshell - I worked my ass off to keep my family above water while my then-wife ran up the credit cards and when the house of cards collapsed, she took off.... I offered to take the bulk of the debt in a deal that also allowed me to keep the kids.

I have no regrets as far as the divorce goes. The kids and I are happy. And now that my ex-wife is out of the picture - we find ourselves with much simpler needs.

Although I do not treasure being under any sort of a microscope for five years - I really do feel that I owe my creditors what I can afford to pay, and so am OK with a CH 13 in essence.

My original post was really aimed at understanding the threat of garnishment... which I think I understand better now.

The real issue for me is to stop procrastinating, to get my house in order, and face the music.

I really do appreciate the discussion and feedback here. And it is helping me realize I need to push ahead.

My youngest is 7. If I file this fall - I'll hopefully be in pretty good shape by the time she starts high school. I can take a couple of rough years in between now and then... so long as there is a light at the end of the tunnel.