Wage Garnishment: FAQ

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What is wage garnishment?

If you owe money to a person or company that you have failed to repay or even begin to repay, the creditor (entity to whom you are indebted) can obtain a court order against you. This court document will order your current employer to take a specific amount of money out of each of your paychecks. This money will go directly to the creditor to whom you owe money.

How much of my paycheck can be garnished?

There are federal laws in place that limit the amount of money that can be garnished from anyone’s paycheck so that the debtor can still manage their monthly expenses. Generally, no more than 25% of your income (after deductions) can be garnished by any combination of creditors who may be seeking money from you.

Can I lose my job because of a wage garnishment?

If you have only one garnishment against your wages, your employer does not have the right to terminate your employment, nor can they punish you or treat you any differently because of a wage garnishment.

Multiple wage garnishments filed against you will give your employer some rights to take action. For example, suppose your employer discovers that you are neck-deep in unpaid debt and your job duties include dealing with company finances. Your severely disordered finances at home send up a red flag, and many times employers do have rights against you when the garnishments keep rolling in.

What can I do to eliminate a wage garnishment?

If you feel that a wage garnishment has been filed against you erroneously, you can protest the garnishment at a court hearing. You may also have rights if you cannot manage your bills with the wage garnishments set as they are.

Additionally, you can immediately eliminate any and all wage garnishments by simply paying off the debts in full. If you are starting a new job and don’t want your new employer to know that you owe money to a creditor, your best bet is to try to work with your debt negotiation lawyer to lower the amount you owe so that you can pay it all off in one fell swoop.

Can I eliminate all wage garnishments?

While you can “cancel out” a wage garnishment for say, credit card debt, defaulted loans or medical debt, some garnishments are harder (and sometimes impossible) to remove. For legal reasons, if you owe child support, your NJ county court will automatically set a wage garnishment action in place once your Final Judgement of Divorce has been entered. This guarantees that your children will always be cared for appropriately with no missed payments.

The same is true if you owe money to the federal or state government in the form of back taxes, or if you have delinquent student loans. In fact, wage garnishments for child support, taxes and student loans can even be initiated without a court order.

If you are facing a wage garnishment in New Jersey that you feel is inaccurate or that is preventing you from meeting your other basic financial obligations, work with your NJ debt relief attorney to either modify the wage garnishment order(s) or eliminate them if they are unlawful.

 

Image credit: Tax Credits
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Can I Discharge Income Tax Debt in a Chapter 7 Bankruptcy?

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It’s a common misconception that income taxes cannot be discharged in a Chapter 7 bankruptcy. Most people assume that, even if they are deep in tax debt, that they would not be able to erase their tax debt through a bankruptcy proceeding. The good news is that those assumptions are wrong; however, there are some specific rules that apply when a debtor wants to discharge his or her owed back taxes.

The rules surrounding dischargeable tax debt are commonly referred to as the 3 – 2 – 240 rules. Any person wishing to discharge back taxes must meet all three of these qualifications, and the only type of taxes that are eligible for discharge via bankruptcy are income taxes.

A little more about the 3 – 2 – 240 rules:

The Three-Year Rule simply states that anyone wishing to discharge his or her back tax debt in a bankruptcy cannot file for bankruptcy until at least three years have passed since the taxes in question became due. For example, if Debtor A owes back taxes from the year 2013, he would not be able to file for bankruptcy until 2016. As tax day is almost always April 15 of any given year, Debtor A’s 2013 taxes would have come due on April 15, 2013 and therefore, he would not be able to file for bankruptcy until April 15, 2016.

 The Two-Year Rule sets out that a debtor must have filed the taxes in question at least two years prior to filing for bankruptcy. This rule applies even to debtors who filed their taxes late, as long as they were filed. For example, if Debtor B owed income taxes on April 15, 2014 but did not actually file her taxes until March 15, 2015, she will not be able to file for bankruptcy until May 15, 2017. This date puts her two years out from when she actually filed her taxes and also meets the Three-Year Rule as stated above.

The 240 Day Rule states that any tax assessment that is completed must take place at least 240 days before the date of any bankruptcy filing to discharge income taxes. This is usually only an issue if a debtor files a correction or is audited. For example, Debtor C files her taxes on time on April 15, 2012 but is audited by the IRS and is determined to have made an error in her tax paperwork. The date of the IRS’s new assessment of how much she owes didn’t take place until March 15, 2015. Because of this assessment and Debtor C’s error, she will now be unable to file for bankruptcy until October 12, 2015 (March 15 + 240 days), which meets all three of the 3 – 2 – 240 rules.

Obviously, anyone who commits tax fraud or willful tax evasion will not be eligible to discharge his or her taxes in a bankruptcy.

There are, of course, special considerations and your case may be unique, so if you wish to discharge your income tax debt via Chapter 7 bankruptcy, but aren’t sure if you’d qualify, seek out the advice of a seasoned bankruptcy attorney in your area.

Benjamin Franklin was quoted as saying, “In this world, nothing can be said to be certain, except death and taxes.” As it turns out, you may have other options!

Image credit: Alan Cleaver