Wage Garnishment and Bank Account Seizures/Levies

Have you been surprised by wage garnishment (“WG”) or bank levy (“BL”)?  

Don’t know if you have a lawsuit or judgment against you but have your suspicions?  The online source for free searches is https://publicrecords.netronline.com/

If you have a wage garnishment notice or your bank froze your funds, you found a judgment or lawsuit or are expecting a creditor to sue you, what can you do to handle the situation before the situation handles you?

  1. Reach out to settle. In an amount, you can afford it.  Do not agree to an automatic payment deduction from your bank account.  Before you make your settlement offer, consult with a bankruptcy attorney.  If you are unable to settle - you have a backup plan.
  2. Object to the Wage Garnishment. Complete the forms and give them to the Sheriff and your employer.  The forms include a financial statement. Before you complete and file your Claim of Exemption forms, make sure your payroll tax withholding is correct and consult with an attorney to check your Claim of Exemption forms then wait for the freeze to thaw. 
  3. Object to the Bank LevyComplete the forms and give them to the Sheriff and your bank.  You may or may not need a financial statement. Before you complete and file your Claim of Exemption forms, make sure your payroll tax withholding is correct and consult with an attorney to check your Claim of Exemption forms then wait for the freeze to thaw.
  4. File bankruptcy. Consult with a knowledgeable bankruptcy attorney to determine which chapter, when to file and if bankruptcy is the right remedy.  Here are the issues to look at (1) what your assets are worth and what you can protect with exemptions; (2) the amount of your income; (3) the type of the rest of your liabilities; (4) any transactions with family, friends and business partners for the last two years; and (5) your spending history for the last three (3) months.  

How much will the Judgment Creditor take?  

Wages: California State Laws allow the Judgment Creditor to receive 50% of your wages in excess.  Your wages in excess are (40 x the state, federal or local minimum wage) – (payroll deductions for federal, state and local taxes, Social Security, and contributions to mandatory government retirement programs) = your wages in excess; 50% or half of that amount is what the creditors may have.   

Can you afford this?  If not then you must be proactive and file a Claim of Exemption based on your finances.   Before you complete and file your Claim of Exemption forms, make sure your payroll tax withholding is correct and consult with an attorney to check your Claim of Exemption forms.  

Bank Levy:  California Law after September 1, 2020, automatically exempts $1,724 from bank levy.  Until then, funds in your bank account are frozen to allow you time to object by filing the Claim of Exemption forms with the Sheriff and your bank.   Before you complete and file your Claim of Exemption forms, make sure your payroll tax withholding is correct and consult with an attorney to check your Claim of Exemption forms.  

How can you protect your wages until you resolve your debt or file bankruptcy?

  1. Adjust your withholdings to make sure you don’t incur tax liability which also reduces the amount of your income open to WG.   
  2. Pay Child Support through a payroll deduction, rather than voluntarily, to make sure of your continued payment to support your family which also reduces the amount of your income open to WG. 
  3. Reach out to the Judgment Creditor and offer a settlement amount you can afford.  Before you make your settlement offer, consult with a bankruptcy attorney. If the Judgment Creditor refuses your offer, go to your backup plan.  

How can you prevent Student Loan Wage Garnishment?   

  1. Enter a repayment plan you can afford before you default and prevent a WG, Tax Refund Interception or BL.  
  2. Consolidate your loans to erase the default, enter a repayment plan to stay current and prevent a WG, Tax Refund Interception or BL.

What if you already have a Student Loan Wage Garnishment?

  1. This is an administrative WG and the Federal Government may seize up to 15% of your disposable wages; State law wage garnishment protections do not apply.  15% of your disposable wage is (30 x the federal minimum wage) currently anything over $217.50 a week is disposable wage.  
  2. Option 1: Object on the basis of financial hardship.  
  3. Option 2: Enter a rehabilitation plan.  The garnishment will stop after you make 5 payments.
  4. Option 3: File Bankruptcy.  The garnishment ceases. The Chapter 13 Plan Payments establish a reasonable monthly amount for payment on your Student Loans post-petition.  A Chapter 7 bankruptcy discharge frees up funds to pay your student loans.  

How can you protect your money until you resolve your debt or file bankruptcy?

  1. Ask your employer to load your wages to a Payroll Card Account or a Prepaid Card instead of issuing a paper check or direct deposit to your bank account.  Be sure and check the fees on these cards and understand how to avoid them – such as using only ATMs in the card’s network. Prepaid cards should never be a vehicle for borrowing, but only for the storing and spending of your money.  These funds may be subject to seizure but as practical matter judgment creditors are far less likely to seize these types of accounts versus money in bank accounts.  
  2. If paper payroll checks are the only option to avoid direct deposit, avoid expensive check cashers; instead, cash your check at your local store.  Checks from major employers are easier to cash. A small check cashing fee is worth the cost to keep the rest of your check to support yourself or your family.    
  3. Federal Law protects Social Security, SSI, VA Benefits and certain other Federal Benefits from seizure by Judgment Creditors.  If a Judgment Creditor causes your bank to freeze your Social Security, SSI, VA Benefits and certain other Federal Benefits, you have a specific number of days to complete the forms to melt the bank freeze.  Before you complete and file your Claim of Exemption, have an attorney check to make sure you have filled them out correctly.  
  4. Are the funds in your bank account from wages?   If your bank levy is before September 1, 2020, you must complete the forms to Claim the State Law ‘Wildcard’ Exemption and wait for bank freeze to melt before you can access your funds.  Effective September 1, 2020, California State Law automatically protects $1,724 of the funds in your account, to protect any funds over $1,724 you must complete the forms to Claim the State Law ‘Wildcard’ Exemption and wait for bank freeze to melt.  Before you complete and file your Claim of Exemption, have an attorney check to make sure you have filled them out correctly.  
  5. Are the funds in your bank account from a mixed source (Federal Benefits and Wages) or is your bank account joint (Judgment Debtor and non Judgment Debtor)?  Before a bank levy is issued, separate the funds into different bank accounts. Use the unprotected funds first.   

Do you owe the United States money?

The United States can offset debts owed to it against your Social Security, SSI, VA benefits and other federal benefits.  It can seize any amount over $750 up to 15% of a monthly benefit payment.  

Did you sign a Wage Assignment as part of an initial credit agreement?  

Wage Assignments instruct your employer to send a portion of your wages to the creditor each pay period.  A wage assignment is a voluntary agreement inside a voluntary credit agreement. To be valid a Wage Assignment must be revocable by you, the payroll deduction must start when you enter the initial credit agreement, and the assignment only attaches to your wages as you earn them.  


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