A person in great financial difficulties has decided to file for Chapter 7 bankruptcy. This person began the process about a month ago, and has spent close to $1500, $300 for filing fees on paperwork submitted to the bankruptcy court and the rest to the bankruptcy lawyer. While this is occurring, this person, who may now be a debtor based on the bankruptcy filing, receives a letter from a creditor, a loan company. The letter is formal notice that that loan company is taking this person / debtor to court to establish a garnishment of wages. This person to-be-a-debtor is very surprised and wonders what is going on, what has happened to the ‘automatic stay” so well touted as the starting point of bankruptcy relief. This person immediately contacts his or her lawyer.
So, what has happened? There are a number of possibilities and questions to be asked to better frame the situation that is occurring here. Certainly, the first question should be to the courts as to what is the state of the bankruptcy filing. Is the filing accepted as yet? If not, there is no automatic stay in place, no notification to the listed creditors by the court that the debtor is now under bankruptcy protection.
Within 180 days prior to a bankruptcy filing being accepted, the person seeking to file must have attended and completed a court certified credit counseling class given by an approved credit counseling service. If this was not done, it would hold up or prevent the bankruptcy filing from being accepted by the court. There are circumstances where this class can be waived, but there would have been discussion and ruling by a bankruptcy court judge on the matter.
Another reason for the creditor continuing to move forward on the garnishment judgment is that the court does not have the correct contact information on the list of creditors that was (supposed to be) filed as a part of the initial set of bankruptcy papers. It is the sole responsibility of the filer to insure that all of the information filed is as correct is possible. Hopefully, with the advice of the bankruptcy lawyer, the filer has a copy of all of the paperwork that was filed and can double check on the contact information. If not, the filer will have to contact the court to request a review of that paperwork.
One last point to explore is the possibility that the creditor is not fully aware of the federal and state bankruptcy laws. The creditor perhaps is not aware of what a notice of automatic stay means to the current situation. Or, the creditor, in an amazing fit of arrogance and defiance, refuses to abide by the stay notice and is proceeding (at incredible risk) towards getting its money by means of garnishment if necessary. Regardless, if the automatic stay is in place and if the creditor has been served notice of its placement, the creditor has now places itself in a situation that is contempt of court, and subject to severe financial penalties.
But, as was said in the beginning, unless the filing is accepted, and the creditor duly notified, the process of garnishment judgment can legally continue.