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Will Bankruptcy Prevent Creditors from Garnishing My Wages?


In a previous post, we explained some of the basics of Iowa’s bankruptcy exemptions, specifically as they applied to a debtor’s house and personal automobiles. But another common question we get is, “What about my weekly pay?” Many people file for bankruptcy protection because they fear their creditors may attempt to garnish their wages. So how exactly does Iowa’s bankruptcy exemptions protect what limited money you do manage to bring in?

Non-Bankruptcy Limits on Wage Garnishment

First, even if you do not file for bankruptcy, Iowa law limits the amount of wages that a creditor may garnish. The law in this area is somewhat complicated. Basically, you start with your “disposable earnings” for a given workweek. This is simply the amount of pay you receive after accounting for any legally mandated deductions (FICA, income tax withholding, etc.) Under state law, your creditors may not take the lesser of 25 percent of your total disposable earnings, or $290 (which reflects 40 times the federal minimum wage).

But on top of this limit, Iowa also restricts how much each individual creditor may garnish during a calendar year. This limit depends on how much you make. For debtors earning less than $12,000 per year, the per-creditor limit is $250. But if you make $40,000 per year, a creditor may garnish up to $2,000 annually, subject to the aggregate limits discussed above.

Wages & Bankruptcy Exemptions

Now if you do end up in bankruptcy, Iowa law separately exempts up to $1,000 in combined “accrued wages” and “state and federal tax refunds.” This exemption is in addition to, and not a substitute for, the wage garnishment limits described above. And according to a recent ruling by a federal bankruptcy judge here in Iowa, this exemption may be used to protect wages garnished prior to a bankruptcy filing.

In this case, a debtor had $1,880.46 in accrued wages which were paid over to, and held by, the local sheriff under a pre-bankruptcy garnishment order. The debtor claimed the right to exempt $1,000 of those wages under Iowa law. The bankruptcy trustee assigned to the debtor’s case disagreed, arguing that the law only exempts “accrued” wages that have not been paid by the employer prior to bankruptcy. Since the wages were already “paid” to the sheriff, the trustee maintained they were no longer accrued.

U.S. Bankruptcy Judge Anita L. Shodeen disagreed. She noted that the Iowa Supreme Court has previously said that a debtor retains exemption rights in “accrued” wages deposited into a bank account. This case was no different. The fact the wages were deposited with the sheriff, rather than a bank, did not “change the underlying fact that the garnished funds represent accrued wages owed to [the debtor] from his employer and does not deprive him of his interest in those funds, including the right to claim a wage exemption.”

Get Help from a Bankruptcy Lawyer Today

Bankruptcy is designed to help individuals struggling with debt rebuild their lives. But you can only take full advantage of the process if you work with an experienced Southeast Iowa Chapter 7 bankruptcy attorney. Contact the Noyes Law Office, P.C., today if you need immediate legal assistance.


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