Garnishment or Levy: Understanding Wage Seizure and Asset Freezing

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Explore the critical differences and legal implications of garnishment and levy. Learn how Chang & Diamond, APC can help safeguard your finances and legal rights.

When your finances are legally questioned, it can be hard to tell what you own and owe. Imagine suddenly finding your bank account empty or your paycheck much smaller; this is what can happen with levies and garnishments. These are legal ways that creditors can claim money from you, leaving you feeling powerless.

A levy allows creditors to take money directly from your bank accounts or other financial assets. If a court gives a creditor permission to put a levy on your accounts, they can lock your funds, and only they can unlock it. On the other hand, garnishment means taking part of your wages before you even get them, directing your employer to send that money to your creditors instead. 

At Chang & Diamond, APC, we have helped our clients deal with these challenging situations for many years. Understanding these legal actions is crucial to protect your money and keep your income safe. Our professional help makes facing these challenges less intimidating, and we are here to guide you through them.

Understanding Garnishment and Levy

Before moving forward, it’s essential to understand the differences between garnishment and levy. 

What Is Garnishment?

Garnishments are court orders directing a third party to deduct payments from a debtor’s wages or bank account. For example, if an individual fails to pay child support, taxes, or a court judgment, a creditor may seek a wage garnishment. This means a portion of the debtor’s paycheck is withheld and sent directly to the creditor or an agency like the Internal Revenue Service (IRS). 

Types of income that can be garnished include wages from your job, bonuses, commissions, pension or retirement funds, and sometimes even Social Security benefits. Other sources like workers’ compensation, unemployment benefits, and certain types of disability payments can also be subject to garnishment, depending on the laws of your state and the nature of the debt.

What Is a Levy?

Unlike garnishment, a levy involves the seizure of assets. Creditors, including the IRS for a tax debt, may enact a bank levy, allowing them to take funds directly from your bank accounts. Levies can also lead to the seizure and sale of personal property. 

Assets that can be levied include bank accounts, where creditors can directly seize the funds available. Real estate property is another significant asset that can be levied; creditors might place liens on homes or other properties to secure the repayment of debts. Personal property, such as jewelry, vehicles, and valuable collectibles, can also be levied. Sometimes, even business assets like equipment, inventory, and accounts receivable can be targeted to satisfy a debt. 

Key Differences Between Garnishment and Levy

Here are the key differences between garnishment and levy:

  • Process

Garnishment: Involves taking a part of your income directly from sources like your wages or bank accounts. This process usually requires your employer or bank to send part of your earnings directly to the creditor.

Levy: Involves taking money or property directly, like freezing your bank account or seizing your property.

  • Affected Assets

Garnishment: Mainly affects income streams such as wages, bonuses, and sometimes benefits like pensions.

Levy: Can affect a broader range of assets, including bank accounts, cars, real estate, and personal belongings.

  • Legal Standing

Garnishment: Requires a court order directing someone who owes you money (like your employer) to send part of it to the creditor instead.

Levy: Also requires legal authorization but is generally more severe and direct, allowing creditors to take possession of your assets.

These points show that while both garnishment and levy are ways creditors use to collect debts, they differ in their approach, the types of assets they target, and the legal processes involved.

Legal Protections Against Garnishment and Levies

Legal protections against garnishment and levies are designed to safeguard individuals from excessive financial hardship due to debt collection. These regulations ensure that people retain enough income and assets to meet basic living expenses while balancing creditors’ rights to recover debts.

Consumer Credit Protection Act (CCPA)

The Consumer Credit Protection Act (CCPA) is a federal law in the United States that provides essential protections for consumers regarding credit transactions. One significant aspect of the CCPA is its provision on wage garnishment, which limits the amount of money that can be garnished from an individual’s wages to ensure that individuals have enough income left to meet basic needs. Here’s how the CCPA regulates wage garnishment:

    • Garnishment Limits

    The CCPA limits the amount of an individual’s disposable earnings (earnings after mandatory deductions like taxes and Social Security) that can be garnished in any workweek or paycheck. 

    The general rule is that the lesser of the following amounts may be garnished: 25% of the debtor’s disposable earnings for that week, or the amount by which the debtor’s disposable earnings exceed 30 times the federal minimum wage. If, for example, the federal minimum wage is $7.25 per hour, garnishment cannot exceed the amount by which a person’s weekly earnings exceed $217.50 (30 x $7.25).

    • Multiple Garnishments

     If an individual has multiple garnishments, the total garnishment amount still needs to be at most 25% of their disposable earnings. This helps to ensure that garnishments don’t take an excessively large portion of a person’s income.

    • Exceptions

    There are exceptions to these limits for certain types of debts. For example, higher amounts can be garnished for child support, alimony, federal taxes, and certain federal student loans. For child support and alimony, up to 50% of disposable earnings can be garnished if the debtor supports another spouse or child and up to 60% if not. An additional 5% may be garnished for support payments over 12 weeks in arrears.

    • Protection Against Termination

    The CCPA also protects employees from being fired if their wages are garnished for any single debt, despite the number of levies made or proceedings brought to collect that debt. 

    The CCPA’s rules on wage garnishment provide a balance between allowing creditors to collect debts and protecting debtors from excessive financial hardship. This federal regulation ensures that individuals have sufficient income to support themselves and their families, even when facing wage garnishment.

    California Claim of Exemption for Wage Garnishment

    In California, the Claim of Exemption for Wage Garnishment is a legal process that allows individuals whose wages are being garnished to seek relief if the garnishment negatively impacts their ability to meet basic living expenses. 

    The Claim of Exemption protects people from undue hardship from wage garnishment. It’s beneficial for those who need a significant portion of their earnings to cover essential expenses like housing, food, and healthcare.

    When a garnishment order is issued, the debtor can file a Claim of Exemption with the court. This claim must detail why the garnishment is excessively burdensome and specify the income necessary for essential living expenses. Along with the Claim of Exemption, the debtor submits a financial statement that outlines income, expenses, and dependents.

    California law provides specific guidelines on how much of a debtor’s earnings are exempt from garnishment. Generally, the lesser of the following can be garnished: 25% of the debtor’s weekly disposable earnings or the amount by which the debtor’s weekly disposable earnings exceed 40 times the state minimum wage.

    Once the Claim of Exemption is filed, a hearing may be scheduled. At the hearing, the debtor can present evidence and argue the case for reducing or halting the garnishment. The court then decides whether to adjust the garnishment based on the debtor’s financial needs and the exemption guidelines.

    If the court approves the Claim of Exemption, the garnishment amount may be reduced or, in some cases, completely stopped. This decision helps balance the creditor’s right to collect debt with the debtor’s need to maintain a basic standard of living.

    This process is crucial for those facing wage garnishment in California, providing a legal avenue to seek relief when financial burdens become overwhelming. 

    Filing for Bankruptcy as a Solution

    Bankruptcy can be a powerful legal tool to halt garnishments and levies, providing a fresh start by addressing overwhelming debt. Here’s how bankruptcy works to stop these collection activities and the differences between the main types of consumer bankruptcy—Chapter 7 and Chapter 13:

    Stopping Garnishments and Levies Through Bankruptcy

    When you file for bankruptcy, an automatic stay immediately goes into effect. This stay is a legal injunction that stops most creditors from collecting debts. This means garnishments and levies are halted after the bankruptcy petition is filed. 

    • Chapter 7 Bankruptcy

    Chapter 7 bankruptcy is also known as a liquidation bankruptcy. Certain assets might be sold off to pay creditors. However, depending on state laws, many personal assets can be exempt from liquidation. 

    In Chapter 7, eligible debts are discharged, meaning they are wiped out entirely after the liquidation, and any ongoing garnishments related to those debts will cease. It’s typically suited for individuals with limited income who do not have significant assets to protect from liquidation.

    • Chapter 13 Bankruptcy

    Chapter 13 bankruptcy is a reorganization type, where debtors propose a repayment plan to make consistent payments to creditors over three to five years. Under Chapter 13, garnishments and levies are stopped by the automatic stay, and as long as the repayment plan is adhered to, creditors cannot resume these actions. 

    The Effect of Declaring Bankruptcy on Wage Garnishments and Levies

    When one files for bankruptcy, an automatic stay is immediately enacted. This legal provision temporarily halts creditors from pursuing debt collection actions, including wage garnishment and asset levies. The automatic stay, as per U.S. Code 362, remains in effect throughout the bankruptcy process, providing the debtor with a period of financial relief and the opportunity to reorganize or discharge their debts under the protection of the bankruptcy court.

    While the automatic stay is comprehensive, it does not cover all debt collection activities. Notable exceptions include:

    • Child support and alimony
    • Certain tax proceedings
    • Criminal proceedings
    • Loans from a pension

    Impact of Bankruptcy on Garnished Wages and Levied Assets

    Many types of debt can be discharged completely in both Chapter 7 and Chapter 13 bankruptcy. For instance, in Chapter 7, once the bankruptcy is finalized, debts related to credit cards, medical bills, and personal loans may be eliminated, stopping garnishments associated with these debts.

    Chapter 13 bankruptcy allows debtors to reorganize their debts and propose a repayment plan based on their ability to pay. This can result in significantly reduced payments and may include restructuring secured debts (like car loans or mortgages) and some unsecured debts (like credit card debts). Garnishments related to these debts are halted, and the repayment terms can be adjusted to be more manageable.

    Consulting with a bankruptcy attorney such as Chang & Diamond, APC can provide guidance tailored to individual circumstances, helping to navigate the complexities of choosing the right type of bankruptcy and understanding the impact on current financial distress, including garnishments and levies.

    Preparing for Legal Proceedings

    Wage garnishment or bank levies can be very stressful, so it’s important to be well-prepared for any legal action. Make sure all your documents are in order, and consider getting help from a lawyer, as every step is crucial to protecting your interests.

    Gathering Documentation

    To get ready for a garnishment or levy, start by collecting all your important financial records, legal notices, and communications with creditors. Here’s a simple list to follow:

    • Make a detailed list of all your financial assets and personal property.
    • Gather statements from any bank accounts that might be affected by levies.
    • Collect proof of your income and recent pay stubs.
    • Keep any previous communications with government agencies or private creditors.
    • Hold on to all legal notices related to the debt or garnishment.

      Why Legal Representation Matters

      Dealing with a lawsuit or collection efforts can feel overwhelming. Having a lawyer can make a big difference because they can:

      • Check all your paperwork to make sure it’s correct and legal.
      • Provide advice on any defenses you might have.
      • Try to negotiate with the creditor to possibly stop the collection.
      • Ensure your rights are protected, especially concerning income and property that should not be taken.

      Professional legal help from people who understand the law can guide you through the process and help ensure the most favorable outcome.

      How Can Chang & Diamond, APC Help?

      Chang & Diamond, APC, provides legal advice and representation to clients facing garnishment or levies. Here’s how we can help:

      • Legal Consultation: Chang & Diamond, APC offers free initial consultations to assess the client’s financial situation and determine the preferred course of action. 
      • Debt Defense: The firm defends clients against aggressive debt collection practices. We ensure that all actions taken by creditors comply with legal requirements and work to protect the client’s rights.
      • Negotiation with Creditors: We negotiate with creditors to achieve a favorable client outcome. This can include reducing the amount owed, restructuring payment plans, and stopping further collection actions.

      Chang & Diamond, APC, has over 30 years of bankruptcy law experience, including successfully handling cases involving garnishments and levies. The firm’s attorneys, Richard E. Chang and Steven J. Diamond, have extensive backgrounds in helping clients navigate financial distress. Our attention to each case and our deep understanding of bankruptcy law ensures that clients receive practical and compassionate representation. 

      Contact Chang & Diamond For All Your Garnishment or Levy Issues

      Knowing your legal rights is important when dealing with actions like garnishments or levies because of debt. Garnishments need a court order and usually affect your wages, which could reduce your take-home pay and make it hard to cover expenses like child support or taxes. Levies, on the other hand, let creditors take money straight from your bank accounts or sell your property to get what they’re owed.

      At Chang & Diamond, APC, we know how hectic it can be to face these debt issues and deal with creditors. We help our clients understand and manage their debt situations. We’re here to help reduce the stress and burden of financial troubles. Contact us today for guidance and support if you need help understanding or dealing with a garnishment or levy.

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