Q: I am overwhelmed by credit card and medical debt. Will my wages or bank account be garnished unless I file for bankruptcy?
A: Wage or bank garnishment is a possibility. If you are employed and earn more than minimum wage, a creditor who has obtained a judgment against you can file a wage garnishment. This will take up to 25 percent of your take-home pay (gross pay minus income taxes only), which will be paid to your creditor rather than to you until the judgment is satisfied. If a creditor files for a bank garnishment, with certain exceptions, the creditor may take all of your deposits except for $400. It may be possible, however, to avoid both garnishment and bankruptcy.
Q: How can I avoid a wage or bank garnishment?
A: There are three common options that may give you some breathing room in your budget while avoiding wage or bank garnishment.
The first option is to enter into trusteeship in the municipal court where the creditor has obtained the judgment against you. The trusteeship requires you to pay to the court the amount that would have been taken by a wage garnishment. This sum would be divided among all of your listed creditors (not including your mortgage and/or car payment), rather than being paid to only the one creditor threatening garnishment.
The second option is an “assignment for the benefit of creditors.” This process involves assigning some of your property to a person who will sell it to pay your creditors. Assignment for the benefit of creditors is similar to a chapter 7 bankruptcy, except that you file it with the probate court and you can pick the person who will be selling your property.
The third option is to enter into a debt settlement agreement with a nonprofit consumer credit counseling agency. If you choose this option, a credit counselor would contact your creditors to arrange monthly payments and may be able to convince your creditors to keep interest from accumulating or accept less than the full amount owed. Creditors do not have to participate in this program; nor are they required to allow you to pay less than the full amount owed. However, t many of the larger creditors, such as banks, hospitals and utilities, do participate. Nonprofit credit counseling services provide free initial comprehensive and confidential financial counseling sessions and charge modest fees if a consumer enters into a debt settlement program.
Q: I am retired and my only income comes from Social Security, IRA accounts, and a pension from my employer. If I do not pay my creditors, can that income be garnished or will I be forced to file a bankruptcy?
A: No. Your creditors cannot take these funds because they are considered exempt from attachment or garnishment. (Like garnishment, an “attachment” is a court order instructing your bank to pay money from your account to the court.) If your only sources of income are Social Security, IRA accounts, and pension, you may be considered “uncollectible” or “judgment proof.” If an attachment or garnishment of your bank account is filed, however, you must request a hearing to show the court the source of your income and that it is exempt from attachment. If you fail to do this, the creditor may be able to keep the money that is attached except for $400 that you are permitted to keep.
Q: Can my creditors take other property I own, such as my home, furnishings or car?
A: Yes; your creditors can file for an execution against your personal property (cars and household furnishings) or file a judgment lien against your home. However, you have exemptions to protect the equity in that property, so it is not likely that a creditor would take your home, cars, or other personal property to pay your debts.
Q: How can I decide whether I need to file a bankruptcy?
A: There are many factors that go into the decision to file for bankruptcy protection. These include your exposure to garnishment or attachment, what type of bankruptcy you may qualify for, and the effect of a bankruptcy on your credit when compared to a debt settlement agreement or other arrangement. Consult with a bankruptcy attorney or nonprofit consumer credit counseling agency. An attorney or credit counselor will review your specific situation and help you decide the best course of action.
This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Akron attorney Terry D. Zimmerman and updated by Anthony J. DeGirolamo.