Wage Garnishment and how to avoid garnishment

Wage garnishment is a process by which a creditor can bring judgment against you to recover the outstanding debt by taking away money from your wage. However, the court does not collect the money on behalf of the creditor. It only issues the order for garnishment of the debtor’s wage. Wages can be garnished in most states in US with the exception of Pennsylvania, North Carolina, South Carolina and Texas. However, even in these four states, wage can be garnished for outstanding Federal tax dues and alimony and child support obligations. Mostly wages are garnished for credit card debts, medical bills, car loans and student loans.

As per the Federal law, if your weekly disposable income less than $175.50 per week, then you are exempted from wage garnishment. However, if your disposable income is between $175.5 and $234 per week, then the creditor can either garnish the entire amount above $175.5 per week or 10% of your gross income. Now if the disposable income exceeds $234 per week then the creditor can garnish either 10% of your gross income or 25% of your disposable income whichever is less. Even if your wage is under garnishment due to alimony or child support obligation, the creditor can bring judgment to garnish your wages, but the total amount garnished (including the child support and alimony obligation) cannot exceed 25% of your disposable income. However, social security benefits cannot be garnished for payment of private debt.

After the creditor obtains a judgment to garnish your wages, the creditor sends an income execution notice to the city Marshall who will in turn send the notice to the debtor within a period of 20 days. Once the debtor receives a copy of the income execution notice he has 20 days to respond and ask the Marshall for a voluntary repayment plan. If you do not respond to the notice within 20 days, the Marshall may serve the notice to your employer who in turn will send 25% of your disposable income to the Marshall. The Marshall will be sending you an account statement from time to time showing how much payment has already been made and how much is left to repay.

A creditor cannot usually freeze your bank account and garnish your wages at the same time. If your existing garnishment has already exceeded the permissible limit, then no further garnishment of your wage is possible. Moreover, you may not be fired from your job if you have a wage garnishment order for the first time, but if the garnishment is for the second time, the employer can fire you from your present job.

Merry Christmas

Hi everybody
Christmas is on the cards and we are ready to celebrate this auspicious day. Almost all of us go for a vacation to enjoy with our near and dear ones forgetting our professional pressure. We save a portion of our income round the year to spend for this day and return back again in our normal course of work after our vacation.

Now let me try to relate Christmas with our credit problems. Mostly we spend as much as we like during this time without taking into account our ability to repay the amount. We begin spending our savings and once our savings get exhausted we take recourse to our credit cards for our expenses. Now, our credit problem starts from here. Most of us usually have more than 5 credit cards and some of us fully exhaust the credit limit on these credit cards with the expectation that when we return back to work we will repay it slowly from our monthly income. But given our regular monthly consumption expenses, we cannot afford to pay back the credit card outstanding amount and we end up in debt trap because of high interest on these cards. Moreover, due to regular non payment on the credit cards, we become delinquent and this delinquency gets reported in our credit report, which not only reduces our credit score but also increases the probability of the creditor bringing judgment against us.

It is no doubt true that that Christmas comes once a year and we buy clothes and gifts right from the beginning of the month of December and by this time most of us have completed our shopping for this day. So before spending more we should first assess our expenditures because the economy is already on the slowdown and most of us may not have a job when we are going to come back. Moreover, the stimulus payment has not been very much successful in stimulating the economy. We should therefore try to cut down our expenses a bit for this year so that we do not face credit problems the next year when we come back.


Merry Christmas

Bankruptcy: Conditions under which you can file a bankruptcy

There are certain cases where you cannot file a bankruptcy under Chapter 7 or Chapter 13. If you have a Chapter 7 bankruptcy which has been discharged within the last eight years or a chapter 13 bankruptcy discharged within the last six years, you are not eligible to file a bankruptcy again. However, if your Chapter 13 bankruptcy has been discharged on payment of at least 70% of the unsecured debt amount, this six years bar will not be applicable for you. Moreover, if your previous bankruptcy (Chapter 7 or Chapter 13) has already been dismissed within 180 days, you become ineligible for filing any of the two types of bankruptcy. The years are considered from the date the bankruptcy was filed and not from the date you have received a discharge on the bankruptcy.

Now as per the recent bankruptcy law, if you want to file a bankruptcy, you need to undergo a credit counseling program within 180 days of filing bankruptcy and submit a certificate that you have completed the credit counseling program within 15 days of filing bankruptcy in the bankruptcy court. For filing bankruptcy, you need to be a honest debtor in the sense that you should not transfer your property to your friends or relatives to show that you do not have any assets and means to make payments under Chapter 13 bankruptcy and you may be allowed to file a Chapter 7 bankruptcy. In such cases, the court can dismiss your bankruptcy petition.

Even if you qualify for Chapter 7 bankruptcy, your petition may be dismissed if you do not have proper explanation as to how you have spent the cash advances and the reason behind this huge debt. Moreover, if you are undergoing voluntary unemployment in the hope of getting qualified to file a Chapter 7 bankruptcy, your petition can also be dismissed.

Since under Chapter 7 bankruptcy, the Federal Court can order sell of some of your assets to repay a part of the loan and discharge the remaining portion, if you have some assets, like your home, which you would like to keep back, you need to consider going for Chapter 13 bankruptcy as it allows you to keep back your property if you have sufficient income to repay back the outstanding loan amount within a three to five year time frame. If you have huge amount of debt or you have already filed a Chapter 7 bankruptcy within eight years or a Chapter 13 bankruptcy within six years, and you do not qualify for filing bankruptcy, then just do nothing and wait for the creditors to respond first. Now if you don’t have a source of income and the creditor sues you for the debt and judgment against you, they would not be able to collect the outstanding debt because you have nothing to lose. Even if the creditor brings judgment against you, they cannot take away your personal property like clothing, furnishers and other belongings to recover the debt as per the Federal law.

Default judgment: How to vacate a judgment

If you have any outstanding debt with the creditor, and you have not repaid the same, the creditor can sue you to the court. When the creditor files a suit against you in the court, the court sends a summon at your address and you need to file a response to the summon within the date specified, otherwise the creditor may bring a default judgment against you from the court and recover the outstanding debt either through money judgment or judgment to garnish your wages. In some states in US, such as Pennsylvania, Texas and North and South Carolina, wage garnishment is not permitted and so a money judgment may be brought against you. Moreover, the creditor can also bring judgment to garnish your bank account so that as soon as any money gets credited in your account, it is taken away by the bank and deposited it with the creditor and this process will continue so long as the debt is repaid in full.

Now, if you have failed to file a response to summon for some reason or the other, and a default judgment has been brought against you and you are sure that you do not owe any debt to the creditor; you can always file a motion to vacate the judgment. Filing a motion to vacate a judgment means that you are filing an appeal to the court to dismiss the judgment. Motion to vacate a judgment must be filed within 30 days from the date of the default judgment. However, this period may vary from state to state. You need to fill up a form where you have to fill up a declaration in support of your motion and give reason for being absent at the hearing. It is also necessary to state the reason as to why you do not agree to the default judgment. If you have asked for debt validation from the creditor and the creditor did not respond to your validation request within 30 days from the date of receipt of your letter, you can show this as a cause as a reason for filing the motion to vacate the judgment.

After filing the motion to vacate the judgment, the court notifies the plaintiff about the motion you have filed to vacate the default judgment. It may happen that the creditor or the collection agency that has brought judgment you might contact you to settle outside the court. If this happens, then ask them to dismiss the judgment and to inform the collection agencies they have appointed, to stop the process of debt collection from you and get this in writing. You should also ask them to remove the listing from the credit report. However, you should always take note of the fact that you should not go for debt settlement outside the court if the Stature of limitation for the debt has expired.

It may also happen that the creditor might not contact your before the hearing date and even on the date of hearing the creditor may not be present. In such cases you may win the case by default and the judgment will be dismissed. You should obtain a copy of the court order that the judgment has been dismissed and produce it before you employer or the bank in order to stop garnishment. Even if the creditor appears before the court on the court date, and fail to produce necessary documents in support of their claim that they owe the debt, for example, a proper debt validation, then also the judgment would be dismissed.

Departmental store credit cards: Cards that help you to build up a good credit score

Departmental store credit cards are a very important instrument to build up your credit history and therefore a good credit score. Most of the departmental stores in US like the Macy’s, Sears and Wall Mart now have their own credit cards which you can get even if you do not have a credit history or if you have a bad credit history. You can use these cards either to rebuild your damaged credit or to build up a new credit history. You can apply for a new card by just visiting the departmental store and filling up a form.

These departmental store credit cards provide you with a host of facilities, but you can use them only within the chain of the departmental store and not outside. You can use the departmental store credit cards and earn reward points which is as much as six points per dollar spend at the store. The most important thing which one might consider while applying for a departmental store credit card is that, these cards come with a very high rate of interest and low credit limit as compare to general credit cards. Again you do not have the option of cash withdrawals on such cards. However, most of these stores have now converted their cards into VISA or MasterCard co-branded credit cards through tie ups with banks like Citibank and American Express so that you can use them anywhere outside the store chain and can even take cash advances just like normal credit cards. Moreover, these co-branded cards have much lower interest rates as compared to ordinary departmental store credit cards.

Although it is true that the interest rates on these credit cards are high, it does not matter if you pay them off within the interest free grace period. You should spend on these cards upto the limit you think you can afford to pay back within the interest free period and save the interest payment. Moreover, you should not make any new purchases on these cards until your previous debts have been paid off in full. While applying for a departmental store card, you should also take note of the fact that most of these cards offer low introductory interest rates for a period of six months just as an incentive to make you purchase more on the cards. So you should not go by the introductory rates and should spend upto the limit you are able to repay so that you can make the card work to built up a good credit score for you and once you have built up a good credit score, you can apply for an ordinary credit card and start purchasing on the new card and build up a new credit history for that card.