Once you file Chapter 7 or Chapter 13 bankruptcy, creditors must cease collections activities including wage garnishments and bank levies. But what happens to the money creditors already took? Is it possible for you to get that money returned to you?
There are some time-frames you must look at when determining if a wage garnishment or bank levy can be reversed after filing bankruptcy.
Did the wage garnishment or bank levy take place AFTER you filed bankruptcy? If you file bankruptcy and your attorney notifies the creditor of this fact, you may reverse any garnishment or levy that takes place afterward. Sometimes creditors unwittingly continue garnishments or levies after you file bankruptcy because they don’t find out until after they’ve already seized your funds. In that case, it’s usually not a problem to get the levy or garnishment reversed.
Did the wage garnishment or bank levy take place BEFORE your filed bankruptcy? Under some circumstances you may reverse a garnishment or levy even if it took place before you filed bankruptcy. But this only happens if the garnishment or levy took place within 90 days before filing bankruptcy AND the garnishment or levy is considered a preferential transfer.
If a creditor receives a payment from you within 90 days before you file bankruptcy that they would not have received in bankruptcy, this is considered a preferential transfer. This issue usually occurs when you want to repay a relative or friend’s loan before filing bankruptcy—you might transfer some cash to them that they would not have received if their loan to you was included in bankruptcy. In those cases, the bankruptcy court reverses the transfer and has the payee return the funds to the court. Assets seized via garnishment or levy that would not have been received in bankruptcy are also considered preferential transfers and may be reversed. However, if the garnishment or levy doesn’t create a preferential transfer it cannot be reversed unless the funds are considered exempt in bankruptcy.
In bankruptcy there are many exemptions—assets that you can keep and that cannot be seized by your creditors. If a creditor’s garnishment or levy seized funds that are considered exempt under bankruptcy law, then that transfer can be reversed by the court and the funds may be returned to you. For example, if you held disability income in a bank account that was levied by a credit card company, you may work with your bankruptcy attorney to have that money returned to you. Since disability income is exempt from seizure by private creditors they do not have a right to keep those funds.
If creditors have begun garnishing your wage or levying your bank accounts, contact us to today to discuss how bankruptcy can help you.