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Oregon Bankruptcy Blog

Chapter 7 & Chapter 13 Bankruptcy Information

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A wage garnishment is often the last straw that forces people to consider filing bankruptcy.  In Oregon, judgment creditors can garnish up to 25% of net (or take-home) wages.  Once a garnishment starts, it continues to run for 90 days unless satisfied (or paid).  After 90 days, the garnishment can continue if renewed every 90 days until it is satisfied.  Filing a Chapter 7 or Chapter 13 bankruptcy case will not only stop the garnishment from continuing and prevent other judgment creditors from stepping in and garnishing wages, it may also give the debtor who files the bankruptcy case the opportunity to recover the money already seized by the creditor.  

Payments to creditors through wage garnishment are considered recoverable preference payments under section 547 of the Bankruptcy Code if the amount garnished exceeds $600 and the funds were seized within the 90 days prior to the filing of the bankruptcy case.   If the federal exemptions are properly applied by the debtor, payments to creditors under the garnishment can be exempted under sections 522(g) - (h) of the Bankruptcy Code.  The asset must be disclosed on Schedule B of the petition and claimed as exempt on Schedule C of the petition.  Under 9th Circuit case law, payments made to collection agents or agencies may be recovered directly from such agents or agencies.

When I meet a client whose wages are being garnished, I try to file the client's case as quickly as possible.  In these situations, I do not typically require that the full attorney fee be paid prior to filing the bankruptcy case.   This allows my clients to file cases and start the garnishment recovery process more quickly.  Because wage garnishment recovery is not covered under my Chapter 7 or Chapter 13 attorney fee agreements, I offer a contingency fee arrangement to recover the funds from the creditor.  This means that if I am unable to recover the garnished funds, I do not collect a fee from my client.