Brian R. Cahn: “General Order Staying Garnishments is needed for Chapter 7 Bankruptcy Cases”

It happens all the time.

When my clients make their initial consultation, it’s often because an aggressive creditor has filed a lawsuit, obtained a judgment, and started garnishing wages or bank accounts.

A garnishment can be devastating to an indivdual or family living paycheck-to-paycheck. Fortunately, a bankruptcy filing will stop the garnishment and allow the seized funds to be returned to the client.

The filing of a bankruptcy petition, whether chapter 7 or chapter 13, invokes the “automatic stay” codified in the Bankruptcy Code under 11 U.S.C. § 362(a). In a nutshell, the automatic stay is generally invoked immediately and automatically upon the filing of a bankruptcy petition. Therefore, once the bankruptcy case is filed, GARNISHMENTS are supposed to IMMEDIATELY STOP as a matter of law. The law is clear, but without a court order dismissing the garnishment or directing the bank or employer to release the funds, it’s not always easy to convince banks or employers to stop the garnishment or release the funds “automatically” or “immediately.”

It’s relatively easy to stop wage garnishments upon the filing of a chapter 13 bankruptcy in the Northern District of Georgia. A chapter 13 case, commonly referred to as a “wage earner plan,” involves submission of a weekly or monthly payment to creditors under a court-approved plan. The payments are deducted from the debtor’s paycheck pursuant to an “Employment Deduction Order” or “EDO.” Immediately upon the filing of a chapter 13 case, the Court issues an EDO, which is directed to the debtor’s employer. Here’s a link to the standard EDO form issued in the Northern District of Georgia.

The EDO instructs to employer to remit a set periodic payment to the chapter 13 trustee. Paragraph 4 of the Court-issued EDO contains the following language: “This order supersedes any previous order issued with respect to the debtor’s wages.” As a result of the EDO, which is usually issued within hours or days of filing of the chapter 13 case, the Employer has a clear and unambiguous mandate from the United States Bankruptcy Court, instructing the employer to STOP ANY PENDING WAGE GARNISHMENTS.

The real problem arises when a chapter 7 is filed in the Northern District of Georgia. Chapter 7 cases eliminate debt – there’s no EDO issued in the case. Most employers require a COURT ORDER stopping or dismissing the garnishment, or in the alternative, a DISMISSAL OF GARNISHMENT from the creditor. Since we don’t have an EDO, the debtor’s lawyerusually has to contact the attorney for the creditor responsible for the garnishment, and ask that attorney to DISMISS the garnishment. Many creditors attorneys are diligent, but it’s not uncommon for a creditors’ attorneys to take days, or weeks, before filing a dismissal. The delay often has catastrophic consequences when my clients need to pay their living expenses (utilities, insurance, house or car payments, etc.) and can’t get the garnishment lifted.

I am able to file various motions with the bankruptcy court, seeking a court order staying the garnishment, but these motions take 30 days minimum for a hearing, then several more days for entry of the order. If “justice delayed is justice denied,” then “money delayed is money denied.” I can also file a motion for contempt, if the creditor acted unreasonably or exercised control over my client’s funds. The problem, again, is the delay in ultimately recovering funds for my client, and the additional cost to my client for the additional legal work.

One of our neighboring jurisdictions – the United States Bankruptcy Court for the Western District of Tennessee – has SOLVED THE PROBLEM. That district allows the debtor’s attorney to cause an Order Staying Wage Garnishment to be immediately and automatically issued in a chapter 7 case, stopping all wage or bank account garnishments.

I can’t think of any reason for our District not to implement this form Order for chapter 7 cases. The Order simply follows the Code; specifically, the automatic stay. It’s time for our local bankruptcy attorneys and trustees to make a concerted effort to bring this problem, and the proposed solution, to the attention of our judges and clerk.

Feel free to e-mail me with any questions, or leave a comment below.

If you are being sued or garnished, please call my office for your free and confidential chapter 7, chapter 11 or chapter 13 bankruptcy consultation. I have offices in Cartersville, Atlanta, Dallas, Dalton and Calhoun.

Brian R. Cahn
(770) 382-8900
Cartersville | Dallas | Dalton | Calhoun | Atlanta


Posted on October 2, 2011, in Bankruptcy and tagged , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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