Bankruptcy and Garnishment

[AZGuy23]

I am in a situation where I had a garnishment put on my bank account for a judgment. The money is being held by the bank as of now and there is a 30 day grace period (from what I understand) in which time I can request a hearing.

I spoke with an attorney and he said he has seen cases where if you file for bankruptcy before the garnishment funds are sent out to the garnisher/plaintiff, then those funds will be released back to me.

Has anyone ever dealt with this or has anything they can share/comment on it? Thanks.

[despritfreya]

If the funds have not been sent to the judgment creditor they should be released once the bk is filed. HOWEVER, if you file a Chapter 7 since you can only exempt $150 ($300 if married), the funds will have to be given to your Trustee.

Des.

[AZGuy23]

Thanks for the reply Des.

So the funds should be released once it's FILED, not ruled on? I wasn't clear on that from the attorney and was thinking how could the bankruptcy be ruled on so quickly.

The attorney I spoke with recommended I file for Chapter 13 as I own my own business and under Chapter 7, the business assets and company itself would come into play which isn't a path I can really go down. I know with Chapter 13, I would need to be on a payment plan for 36 months but I understand that the amount paid is around 5% of the total debt due? My total debt is around $80,000 all from credit card debts (actual debt was probably around $30,000 and the rest is all interest from 5+ years).

[despritfreya]

I read through your other thread and, yes, if there is “value” to the business you would stay away from a Chapter 7. That is a separate issue from the funds in the bank.

I assume your business is either a corporation or LLC. Determining whether or not you can do a 36 month Chapter 13 will be based upon at least two factors:

1. What your “income” was over the past 6 months. If above median then, whether or not you have positive or negative disposable income as reported by the means test. If positive, you will be stuck in a 60 month plan unless you pay 100% of all allowed claims in less time.

2. Even if you “qualify” for 36 months, you may not be able to afford to pay your creditors what needs to be paid, including the value of your non-exempt assets, in 36 months and, therefore, may elect to a longer Plan duration.

The total amount you pay in is not “5%”, it is a combination of what you can afford to pay and what is required to be paid.

The funds, assuming they are still in the bank’s possession when you file the 13, will be released to you. All you (your attny if you have one) has to do is send evidence of the bk filing to the judgment creditor and the bank. The release should be “immediate”. You can keep the funds as long as your Chapter 13 accounts for them as all but the $150 ($300 if married) are non-exempt no matter what those funds were to be used for or what their source was (Social Security being an exception which apparently does not apply here).

If you file Chapter 13 within 90 days of the funds being released to the creditor you (or your Trustee) can recover them as a preference. However, the attny representing the creditor may instruct the creditor to cut the check to the Trustee so there is a possibility that you will not get to benefit from the post petition use of the funds.

You should sit down with a bk attny sooner rather than later as you want the quick release of those funds. Remember ALL debt is included in your bk. This includes any and all corporate/LLC debt which you personally guaranteed, all credit cards, medical bills, car loans, personal loans, student loans, judgments, taxes, mortgage loans, family loans, you name it - it’s included. If you are married it also includes all debt your spouse has incurred during the marriage even if your spouse does not file with you.

Des.

[AZGuy23]

Everything seems to point that I need to file for Chapter 13 ASAP. Last night I took some time and went over all collection papers and credit reports and it added up to $75,000 due. All off them are from early 2006 so the statute of limitations have passed for anyone else getting a judgment and they will fall off my credit report early next year but this judgment/garnishment is for $14,000 and they will keep coming for it so it seems I either have to pay the $14,000 or file for BK which should be less expensive overall and it will clear everything else as well.

Question about filing for Chapter 13...my wife does not have to be in included, correct? And the creditors won't be able to go after her if I file by myself?

[despritfreya]

Question about filing for Chapter 13...my wife does not have to be in included, correct? And the creditors won't be able to go after her if I file by myself?

I see from your other thread that you met with your attny. I assume he/she explained the effect of a "community" bankruptcy as it relates to the non-filing spouse.

Des.

[AZGuy23]

Do you mean the part about any debt incurred while married will not be included in the BK? He did explain that but all of the debt is from 2006 and we got married in 2009. We have no new debt since then.

[despritfreya]

You actually have it backwards. All debt incurred during the marriage (if any) is "community debt" (there are 2 exceptions) and would be part of your bk even if your wife does not file. You file a bk on behalf of the "community" and, if you successfully receive a discharge, it is a "community" discharge which protects your wife so long as there is a "community".

Now, if you have absolute no debt dated after you got married (no credit card use, no vehicle loans, no personal loans, no medical bills, no nothing), they you do not "need" a community discharge as all debt is sole and separate.

Des.

[AZGuy23]

Hmm I may have misunderstood then because I was pretty certain he said that we would both have to file if we have any debt incurred after we got married. It's a non issue as we don't have any debt but still a little confusing.

[despritfreya]

Hmm I may have misunderstood then because I was pretty certain he said that we would both have to file if we have any debt incurred after we got married. It's a non issue as we don't have any debt but still a little confusing.

While it is a non issue for you, you must have misunderstood. It is not necessary for a spouse to be a named debtor in a "community" bk. However, by leaving the spouse out, that spouse may have to file at some point in the future, once the community is severed either by divorce or the death of the filing spouse. IMO, both spouses should file regardless of the "community discharge" unless there is a specific reason to leave one out. One specific reason could be a valuable sole-and-separate asset such as an inheritance.

Des.