Wage Garnishment & IRS Levy Protection via Bankruptcy
When creditors begin taking money directly from your paycheck or bank account, the financial pressure can become immediate and overwhelming. Wage garnishments, IRS levies, bank levies, and collection lawsuits are among the most aggressive debt collection tools available, and they often leave individuals with little room to cover basic living expenses.
Bankruptcy offers some of the strongest legal protections available against these actions, frequently stopping them quickly and, in some cases, allowing recovery of funds already taken. Understanding how bankruptcy halts garnishments and levies, what the timeline looks like, and where exceptions apply can help individuals make informed decisions when facing active collection efforts. For personalized advice tailored to your specific situation in Oxnard, Camarillo or surrounding areas, contact Rounds & Sutter, LLP, to speak with one of our skilled and experienced Ventura County bankruptcy lawyers.
What Is Wage Garnishment and How Does It Happen?
Wage garnishment occurs when a creditor obtains a court order requiring an employer to withhold a portion of an employee’s wages and send it directly to the creditor. Garnishments are most commonly associated with credit card judgments, medical debt lawsuits, personal loans, and deficiency balances after repossession or foreclosure.
Under federal law, most creditors may garnish up to 25 percent of disposable earnings. In California, the limit is generally the lesser of 25% of disposable earnings or the amount by which weekly disposable earnings exceed 40 times the state minimum wage. Certain debts, such as child support, student loans, and tax obligations, may be subject to higher or different withholding rules.
Before a typical creditor can garnish wages, they must first sue the debtor, obtain a judgment, and then secure a garnishment order. By the time wages are being withheld, the legal process is usually well underway.
How Bankruptcy Stops Wage Garnishments
Filing for bankruptcy triggers the automatic stay, a powerful court injunction that immediately stops most collection activity. Once a bankruptcy case is filed, creditors must cease wage garnishments, collection lawsuits, phone calls, and written demands.
In most cases, employers receive notice of the bankruptcy filing within days, and payroll departments are required to stop withholding wages under the garnishment order. If a creditor continues garnishment after receiving notice, they may be in violation of federal bankruptcy law. Both Chapter 7 and Chapter 13 provide automatic stay protection, though the long-term outcome differs depending on the type of case filed and the nature of the debt.
IRS Levies and Tax Collection Actions
The Internal Revenue Service has broad authority to collect unpaid taxes, including the power to levy wages, seize bank accounts, and intercept tax refunds without first filing a traditional lawsuit. An IRS wage levy can take a significant portion of each paycheck, often leaving taxpayers with only a minimal exempt amount.
Bankruptcy also triggers an automatic stay against most IRS collection actions. This includes wage levies, bank levies, and ongoing enforcement efforts. In many cases, filing bankruptcy stops an IRS levy immediately, providing much-needed relief and time to evaluate options.
However, not all tax debts are treated the same in bankruptcy. Whether a tax debt can be discharged, paid through a repayment plan, or remains fully collectible depends on factors such as the age of the tax debt, filing history, and whether the tax was assessed within certain time frames.
Bank Levies and Frozen Accounts
A bank levy allows a creditor or the IRS to seize funds directly from a bank account. Unlike wage garnishment, which occurs over time, a bank levy can result in a sudden freeze and withdrawal of available funds, often without warning.
Bankruptcy can stop pending levies and prevent additional seizures once the case is filed. If a bank account has already been frozen but the funds have not yet been turned over to the creditor, bankruptcy may result in the release of those funds. Timing is critical, as once funds are transferred, recovery becomes more complex.
For individuals who rely on bank accounts for rent, mortgage payments, or essential expenses, bankruptcy protection can be the difference between financial stability and an immediate crisis.
Stopping Collection Lawsuits Through Bankruptcy
Collection lawsuits are often the precursor to garnishments and levies. Bankruptcy halts pending lawsuits at any stage, whether a case has just been filed or is nearing judgment. If a judgment has already been entered, bankruptcy can still stop enforcement actions such as garnishment, liens, and levies.
In Chapter 7 cases, qualifying unsecured debts underlying the lawsuit may be discharged, eliminating the creditor’s ability to pursue further collection. In Chapter 13 cases, creditors are generally required to participate in the repayment plan instead of pursuing individual enforcement actions.
The Bankruptcy Timeline for Garnishment and Levy Relief
Relief from garnishment and levies begins almost immediately after filing. Once the bankruptcy petition is submitted to the court, the automatic stay goes into effect by operation of law.
Notices are typically sent to creditors within a few days, though in urgent situations, attorneys may contact employers, banks, or creditors directly to expedite compliance. In most cases, wage withholding stops by the next payroll cycle, and levy activity is suspended promptly.
Chapter 7 cases usually last three to four months from filing to discharge, while Chapter 13 cases involve a repayment plan lasting three to five years. During that time, the automatic stay generally remains in place as long as the case is active and compliant.
Can Garnished Wages Be Recovered?
One of the most important questions individuals ask is whether money already taken through garnishment can be recovered. In some cases, the answer is yes.
Bankruptcy law allows for the potential recovery of certain garnished wages taken within a specific period before filing, often 90 days. These recovered funds may be returned to the debtor or applied within the bankruptcy case, depending on the circumstances and exemptions available.
Recovery is more likely when garnishments were for unsecured debts and when the funds can be traced and identified. IRS levies and child support garnishments are subject to different rules and may limit recovery options.
Because recovery depends heavily on timing, filing bankruptcy sooner rather than later can preserve more options.
Exceptions and Debts Not Fully Stopped by Bankruptcy
While bankruptcy provides broad protection, there are important exceptions. Child support and spousal support obligations are not discharged, and while bankruptcy may stop certain enforcement actions temporarily, ongoing support obligations continue.
Student loans and recent tax debts may not be dischargeable, but bankruptcy can still stop active garnishments and levies while the case is pending. In Chapter 13, repayment plans may offer structured relief even when debts survive discharge.
Understanding these exceptions is critical to setting realistic expectations and choosing the right bankruptcy strategy.
Choosing the Right Bankruptcy Chapter
For individuals facing wage garnishment or levies, the choice between Chapter 7 and Chapter 13 depends on income, asset protection goals, and the nature of the debts involved. Chapter 7 is often used to eliminate unsecured debts quickly, while Chapter 13 is frequently used to manage tax debts, cure arrears, and maintain long-term protection against aggressive collection.
An effective strategy requires evaluating current garnishments, pending lawsuits, tax exposure, and long-term financial goals.
How Rounds & Sutter Supports Clients Facing Garnishments and Levies
Stopping wage garnishments and IRS levies requires prompt action and careful coordination. Rounds & Sutter, LLP, represents individuals throughout Ventura County in bankruptcy matters involving aggressive creditor and tax collection. The firm works to stop ongoing garnishments, halt levies, and evaluate whether recovered funds may be available under bankruptcy law.
By addressing both immediate financial pressure and longer-term debt resolution, Rounds & Sutter helps clients regain control over their income and financial stability.
Take the Next Step Toward Financial Relief
If your wages are being garnished, your bank account has been levied, or you are facing escalating collection lawsuits, bankruptcy may offer immediate protection and a structured path forward. The sooner action is taken, the more options may be available. In Southern California, contact Rounds & Sutter, LLP, for a free consultation and immediate assistance to protect your livelihood and chart a path toward effective debt relief.