Many people who come to my office seeking bankruptcy assistance do so because they are in the middle of having collection action taken against them by a creditor, typically a garnishment of their wages or one of their bank accounts. The latter is also referred to as an “attachment”.
In this post, we will take a look at the basics of garnishments and help you to understand exactly what a garnishment is and how it works. The following post will go into more detail about what to do to take back the money seized by your creditors.
A garnishment is a legal order mandating that a third party (generally a bank or employer) seize assets of yours that are under its control for the purposes of collecting a money judgment.
Garnishments are a preferred collection action because they allow creditors to obtain liquid assets of the debtor i.e. cash.
Also, once the money is seized by the third party, the judgment debtor loses control of the asset and must take proactive steps in order to release the funds from the creditor’s grasp.
Compare this to levying on a vehicle or obtaining a lien on real estate which requires the additional process of selling the asset to generate funds to pay the debt.
How Does a Creditor Obtain a Garnishment?
Aside from the IRS, creditors can only petition the Court for a garnishment after they have obtained a judgment against you for the debt owed. Then, once they have located your assets they will file the garnishment with the Court.
Now take note of the following sentence because this is important:
"A judgment creditor can garnish your wages or bank account even before you receive notice that they have filed such action with the Court."
This means that before you even know what is happening or have had an opportunity to respond to the action through the appropriate legal process, a creditor can have money seized from your account or paycheck.
In addition, as I alluded to earlier, the IRS has the authority under tax law to garnish you through an “administrative levy” even without a court order.
I have also experienced situations where my clients were caught off guard by a garnishment for the simple fact that they didn’t even know a creditor had obtained a judgment against them.
This frequently occurs with clients who have lived at various addresses in the year or years preceding the lawsuit filed by the creditor. The simple reason for this is a creditor does not need to notify you in person that a lawsuit has been filed against you in order to obtain a judgment against you.
Yes you read that correctly.
In Virginia, a creditor simply has to serve the lawsuit at your “last known address” and if you do not respond to that lawsuit they will obtain a default judgment.
If you do not happen to live at this address, then you will have no idea a lawsuit was filed, no opportunity to defend yourself, and the creditor can get a legal award of damages against you. Then they can proceed to take collection action.
This is why it is important to know your rights and have the ability to deal with a garnishment after it has already attached to your wages or bank account.
As we will see in Part II of this post, there are several options available to you, the filing of a bankruptcy being one of them.