If you owe a debt you have failed to pay, despite a court order to do so, and you have money held at a financial institution, your creditor may garnish your bank account.

If you can pay your debt, you should. If you cannot pay your debt, do not hide from it. Consider bankruptcy. Talk to an attorney to determine whether bankruptcy will help you.

It may be the case that if you ignore the debt, your bank account will be garnished.

Or, you may be able to file bankruptcy and obtain several different forms of relief. One form of relief is the reorganization of debt and a reasonable payment plan in which to repay debt over a number of years, generally three to five. Some debt ultimately may be discharged.

This is a much better solution than a surprise garnishment of the bank account you use to pay for your necessities, such as food and clothing for you and your family.

The Alternative – Steps a Creditor Will Take to Garnish Bank Accounts

In order to understand the risk of garnishment, it is important to understand the steps a creditor takes and how simple they are. Once you understand that, you may begin to realize why bankruptcy may be a much better option for you.

Your bank may be served with a Garnishment Summons and Disclosure Form along with the following documents:

• Important Notice,
• Instructions, and
• two copies of an Exemption Form.

Minnesota Statues set forth the required content for these forms. These statutes also contain examples of these forms which a creditor may simply copy. These statutes are online at:

• https://www.revisor.mn.gov/statutes/?id=571.74,
• https://www.revisor.mn.gov/statutes/?id=571.75, and
• https://www.revisor.mn.gov/statutes/?id=571.912#stat.571.912.

The financial institution must retain as much of the amount owed as the financial institution has on deposit owing to the debtor, but not more than 110% of the creditor’s claim. Therefore, that necessary heating bill you were about to pay from this account may become frozen.

The creditor must mail to the debtor a copy of the Garnishment Summons and anything else that the creditor served on the debtor’s bank, within 5 days of service on the bank. The creditor must also serve the debtor with a Notice to Debtor in no less than 14-point font. A form example may be found online at https://www.revisor.mn.gov/statutes/?id=571.74.

The debtor has 14 days to notify the financial institution and the creditor of any claim for exempt property he or she wishes to assert. If the financial institution does not receive any such notification within 14 days, the debtor’s funds at the financial institution remain subject to garnishment.

Sometimes when someone owes a debt he or she can’t pay, the person will consider avoiding the creditors completely. First creditors make phone calls, then threats of legal action.

Sometimes debtors have assets or income, even though they are unable to repay a debt.

Sometimes the debtor’s income is consumed by payments for necessities, for keeping family housed and fed, and there is nothing left over for creditors.

This doesn’t necessarily leave creditors out in the cold. Bankruptcy may be an option for you to keep your family from being left out in the cold. If a creditor learns that you have an income, the creditor can garnish your wages, leaving you with less money for life’s necessities.

Creditors sometimes learn this information from personally searching for it, and sometimes they learn it from the debtor, pursuant to a court order.

The Bankruptcy Light at the End of the Tunnel

Bankruptcy may be a way to obtain complete forgiveness for debts, so that creditors can no longer garnish wages, or to obtain court permission to repay debts over a longer period of time, and also avoid garnished wages.

Why Some People Can’t Afford NOT to File Bankruptcy

In order to understand the benefits of filing bankruptcy, it is helpful to understand the consequences of an alternative – wage garnishment.

Below is a the general process through which a creditor garnishes wages of a debtor. Not every step or requirement is listed below, but these are the main steps. This can show you how easy it is for a creditor to garnish wages, and therefore how beneficial bankruptcy may be for you.

Notice of Garnishment

A debtor will first be served with a Garnishment Exemption Notice and Notice of Intent to Garnish Earnings at least 10 days before attempting to garnish wages.

The creditor may serve this personally upon the debtor or by mail.

A sample of the requirements in Minnesota for this Notice may be found in Minnesota Statute 571.925 or online at http://www.revisor.mn.gov/statutes/?id=571.925#stat.571.925.

This notice is valid for one year. There may be things you can claim as exempt from garnishment. The creditor may dispute your claims.

Garnishment Summons

In order to proceed with garnishment, the creditor will need to serve the debtor’s employer with a Garnishment Summons and Disclosure Form.

In Minnesota, an example of a Garnishment Summons may be found in Minnesota Statute 571.74 or online at http://www.revisor.mn.gov/statutes/?id=571.74.

The creditor must mail to the debtor a copy of the Garnishment Summons and Earnings Garnishment Disclosure Form that he or she served on the debtor’s employer, within 5 days of service on the employer.

Notice to Debtor

The creditor must also serve the debtor with a Notice to Debtor in no less than 14-point font.

An example Notice to Debtor may be found in Minnesota Statute 571.74 or online at http://www.revisor.mn.gov/statutes/?id=571.74.

Consider Your Options

Understanding what may happen when a debtor ignores debts may help you decide whether bankruptcy is right for you.  If you think bankruptcy may a good option for you, the next step is to find out more about bankruptcy.

When a person owes a debt and can’t pay it, they often feel there is little they can do. First creditors begin calling the debtor, asking the debtor to pay up. Next, creditors begin threatening the debtor that the creditors will hire a collection agency or take legal action against the debtor if the debtor doesn’t pay.

Ignoring Creditors is Not a Good Idea

Sometimes people think they can continue to ignore the creditors. This is not a good idea. You have alternatives.

Consider Bankruptcy

Consider bankruptcy. Talk to someone knowledgeable about bankruptcy to find out if it can help you. Maybe bankruptcy isn’t right for you. Maybe it is.

Many people think bankruptcy will ruin their lives. They think they will never rebuild their credit. This is not true.

There are drawbacks to bankruptcy, such as your credit report reflecting your bankruptcy filing for a number of years.

There are benefits as well, however. The main benefit is the fresh start you get and the ability to repay new debts and re-establish good credit over time.

No one wants to file bankruptcy, but the drawbacks to bankruptcy are far fewer and less devastating than the alternative – ignoring creditors.

The Consequences of Ignoring Creditors Completely

If you ignore a creditor completely, the creditor will go to court and get a judgment against you.

Next the creditor will get a court order for you to tell the creditor all about your finances and your assets.

If you ignore this order, the creditor will ask the court for a show cause hearing. A show cause hearing is a hearing where the court asks you to show cause, or give a good reason, for your failure to answer the financial questions of the creditor.

If you appear at the hearing:

• the court can fine you, jail you, or both, as a sanction for not responding to the creditor’s financial questions after the court ordered you to do so, or
• if you provide a good reason for your failure to respond, the court will simply give you another ten days to respond – you cannot get out of the requirement that you provide this information.

If you ignore the hearing and don’t appear, the creditor simply fills out a form, an affidavit, informing the court that there was a hearing scheduled, you were informed about the hearing, and you failed to appear for the hearing.

The court will then issue a warrant for your arrest.

Bankruptcy is a Solution to a Problem

As you can see, completely ignoring creditors is not a better alternative than bankruptcy.

Many people file for bankruptcy. This is an acceptable solution.

Be proactive and find out about your options, even if it is uncomfortable. The alternative is not a better solution.

In order for a creditor to collect a debt that the debtor hasn’t paid, a creditor will begin legal action against the debtor.

If you are the debtor, this can make the relentless phone calls and non-stop badgering from creditors seem minor. You should contact an attorney. An attorney can help you determine whether bankruptcy is a reasonable and valid option for you.

An Alternative to Bankruptcy

An attorney can also attempt to negotiate with creditors regarding your debt.

Creditors would much rather receive some of what is owed than have you file bankruptcy and have the debt discharged. Beware, however, not all debts are dischargeable.

Don’t Default

If you owe a debt and you are served with a Complaint but you don’t serve an Answer, the court will most likely enter a default judgment against you.

The Information Request

Next, the creditor will docket the judgment and then ask the court to order you to provide to the creditor information about your assets and liabilities.

The creditor does this to try to determine whether you have anything the creditor can take to repay all or part of the debt.

If you are ordered to provide information to the creditor, and you ignore this order, the creditor will ask the court to order you to give a good reason, or cause, for violating the court’s order.  If you have no good reason the court may sanction you for contempt of court. This sanction could be jail or a fine, or both.

The Creditors’ Request for a Show Cause Hearing

In order to request a show cause hearing, for your failure to provide the creditor with your financial information as ordered by the court, the creditor will need to file an Affidavit in Support of Order to Show Cause with the court.

If the court grants the creditor’s request and orders you to show cause for your failure to provide the creditor with your financial information, the creditor must serve you with a copy of the court’s order.

This service of the Order to Show Cause must be done personally, by either:

• handing the Order to Show Cause directly to you, the debtor, at any location, or

• leaving it with a person of suitable age and discretion residing at the your usual place of abode.

The person who served you will complete an Affidavit of Personal Service informing the court you have been served.

The creditor will then file the a copy of the Order to Show Cause and the Affidavit of Personal Service with the court.

Explore Your Alternatives to Bankruptcy

If you are in this circumstance, you are probably seeing the hole you are in get deeper.

Bankruptcy may be an alternative. However, working it out with creditor may also be an alternative. It is important to determine what action to take right away.

When debts are owed and unpaid, creditors begin to explore remedies for collection.  Creditors may hire collection agencies, which often harass people until they pay. It may be helpful to inform a creditor if you are thinking about bankruptcy.  If your debt to the creditor can be negotiated and you no longer have to file bankruptcy, everyone may win.

Steps Creditors Take to Collect Debts When No Bankruptcy Has Yet Been Filed

After obtaining a judgment and docketing the judgment, a creditor will need to find out your ability to pay the judgment, or the creditor’s ability to collect on the judgment. The creditor will want to know bank accounts, earnings, or other assets you have.ag

Learning the Debtor’s Assets

In order to learn the financial status of a debtor and a debtor’s particular assets, a creditor may file a Request for Order of Disclosure motion with the court.

The creditor files a Request for Order of Disclosure with the same court that docketed the judgment, with the same case number. The creditor will need to fill out the information about the debtor and the debtor’s address.

A creditor may only submit this form when the creditor can truthfully state the following::

1. the creditor won a judgment in the lawsuit against the debtor,
2. the case began in district court and the court administrator docketed the judgment more than 30 days prior to the creditor filing this form, or the case began in conciliation court and the court administrator docketed the judgment,
3. the debtor has not paid the creditor all money owed to the creditor,
4. the debtor and the creditor have not agreed to some other way to settle the debt.

If the creditor can truthfully state all of these things, the creditor may seek this order from the court, in order to learn of a debtor’s assets.

Financial Disclosure Form

There is a standard form, approved by the Minnesota Supreme Court, the creditor and the court will provide to the debtor if the court orders disclosure by the debtor to the creditor. This form seeks information from the debtor about the nature of the debtor’s assets and liabilities, the amount of the debtor’s assets and liabilities, the identity of the debtor’s assets liabilities, and the location of the debtor’s assets and liabilities.

The creditor pays a minimal fee to file this request with the court. The creditor must provide the court with the debtor’s address in order for the court to inform the debtor of the order.

Civil contempt is the consequence of failing to comply with the court’s order to disclose information to a creditor. However, if the debtor has no knowledge of the order, the debtor cannot be held in contempt.

If the court receives the order returned undeliverable at the address provided by the creditor for the debtor, the court will inform the creditor the order did not reach the debtor.

The Financial Disclosure Form also provides an ability for the debtor to claim some assets as exempt from garnishment or attachment.

After a debtor receives an Order for Disclosure, completes the Financial Disclosure Form, and returns it to the creditor, the creditor may challenge the debtor’s determination of exempt assets. If there are assets of the debtor ultimately determined to be nonexempt, the creditor may begin attempting to garnish wages, etc.

Negotiating With the Creditor in Lieu of Bankruptcy

However, creditors who know that a debtor is considering a bankruptcy filing may be willing to work with the debtor to reach a different agreement regarding the debt, in order to obtain some money rather than none.

Therefore, if you are a debtor and are have been ordered to disclose financial information to the debtor, you must comply with the court’s orders. You should also contact an attorney, discuss your bankruptcy options and the benefits of bankruptcy, and possibly attempt to negotiate the debt with the creditor.

The world economy is still struggling to recover from the shattering effect of the recent financial depression. Unemployment rates and the dragon of inflation are still widely out of control. Quite naturally, millions of people are struggling to survive in this economically turbulent weather. Under the circumstance it is rather too easy for people to fall in debt. Being in debt can force you to consider debt relief options or payday loans. While most debt relief programs can seriously damage your credit, the high interest payday loans can push you towards payday loan settlement .

It is possible to avoid such a scary situation if you are a little cautious with your money and develop a proper strategy. Here are a few rules you must follow if you want to stay afloat during recession:

1) Know your financial goals

To allocate your money properly, you should know what you want from life. Considering the present state of the world economy, it is wise to set goals according to your needs rather than wants. There are some important questions that you must ask yourself. Do you want to buy a new house? Would you like to retire early? Do you have plans for your Children’s higher education? Make your plans, save money and invest accordingly. Also, prioritize your goals. Start a daily planner and work towards your priorities according to their importance.

2) Budget, budget, budget

You hate budgets. In fact, everyone hates budgets. However, you do need to start a budget in case you have any intention of having control over your finances. A budget would help you to know your total monthly expenses, whether your payments exceed your monthly income etc. You would get organized and find new ways to save money. Make sure that you don’t spend outside the budget. You can consider using free e-budgeting tools like Mint if you are serious about budgeting. With this software, you can budget on a much bigger scale.

3) Minimum use of credit cards

No one can deny that credit cards have changed the world, for good or for worse, forever. Credit cards help you to buy at will and build credit score but they also ruin you by tempting you to spend more. Are you aware that credit cards are the biggest reason behind consumer debt? Use a single credit card and that too wisely. Particularly remember that it is a bad idea to purchase your everyday necessities with credit cards. If possible, then do away with credit cards altogether and opt for debit cards. By doing so, you won’t be able to spend beyond your means.

4) A rainy day fund

Your life is running smoothly at the moment and you are a happy man. What happens if you lose your job tomorrow? Are you ready for an unexpected and huge medical bill? What about a big car repair bill? A decent emergency fund can save your day in such a situation. Remember that life is what happens to you while you are making other plans. Therefore, start contributing for an emergency fund today. Contribute according to your convenience and make sure that you do not spend that money for trivial reasons.

5) Timely payment of bills

It all starts from here. You start paying late, rack up penalties and late fees and ultimately you are not in a position to make any payments at all. So keep aside money for the payments at the beginning of the month. Do not touch that money for the sake of watching movies or eating out at expensive venues. Also remember that making late payments will seriously hurt your credit score.

6) Stay clear of anymore loans if you are already in debt

If you are already drowning in debt or even have a manageable amount of debt then resorting further loans will only make your situation worse. Many people make the mistake of opting for payday loans to pay off their existing debts. This can be disastrous because if you default on payday loans then you will sink further in debt and may even be forced to consider bankruptcy. So if you have existing debts then focus on clearing it instead of taking new loans.

Managing personal finance can be fun and you can enjoy it. But things can turn sour if you make wrong moves. So remember the above tips and start moving towards a financially secure future.

About the Author:

Myrina Stein is a regular writer for various finance related communities including Oak View Law Group and CDFA. She is a post graduate degree holder in finance from a reputed University in California and currently working in a finance consultancy as an Equity Project Manager. She is well equipped to write articles on debt consolidation, debt settlement services, debt management, credit problems etc.

The first steps a creditor may take in trying to collect debt from you, if you haven’t already filed for bankruptcy and had the debt discharged, is to obtain a judgment against you.

Creditor Steps in Taking Legal Action

A judgment is an order by the court. A creditor may obtain a judgment that says that a debtor owes the creditor a certain amount of money.

After the creditor obtains a judgment, the creditor then dockets the judgment, attempts to find the debtor’s assets, and attach to them or garnish them.

There are many steps the creditor must take in order to learn of the debtor’s assets.

Before a creditor can obtain money through garnishment of wages or a bank account the creditor must give notice to the debtor that the creditor is seeking garnishment of wages or a bank account. The debtor has the opportunity to claim that the debtor’s wages or funds in a bank account are for some reason exempt from garnishment. A creditor who disagrees may seek a hearing before the court and challenge the debtor’s assertion.

Here is some insight into the first steps a creditor will have to take in order to begin the garnishment or attachment process:

Obtain a Judgment

The first step toward collecting a debt owed to a creditor by a debtor is obtaining a judgment against that debtor for the amount the creditor is seeking. A “judgment” is a final decision by a court. Once a creditor has a judgment from a court for a certain amount owed, the creditor can begin the process of collecting that amount.

Docket the Judgment

The creditor must docket the judgment. The court administrator or clerk’s office for the court in which the creditor received the judgment dockets the judgment for the creditor upon request. A “judgment docket” is a list of judicial orders of a particular court, recorded by the court’s clerk, and available for inspection by the public.

The judgment docket provides the ability for interested parties to learn of the existence of the judgment. Recording a judgment in a judgment docket is considered official notice to all parties of the existence of the judgment.

Note

At any time the debtor satisfies, or pays the judgment, the creditor is obviously no longer permitted to seek collection of that amount – the creditor has already collected. If the creditor agrees with the debtor to settle the case in some other way, the creditor is also not permitted to seek collection in violation of that agreement.

Each of the 94 federal judicial districts handles bankruptcy matters, and in almost all districts, bankruptcy cases are filed in the bankruptcy court. Bankruptcy cases cannot be filed in state court.

Litigation in the bankruptcy court is conducted in much the same way that civil cases are handled in the district court. There may be discovery, pretrial proceedings, settlement efforts, and a trial.

• Some cases will occur without objection, and automatically. There are times when creditors make no objections.
• When creditors do object, they file a complaint which creates a lawsuit, or adversary proceeding. In cases where there are objections by creditors or the trustee there will be litigation of the bankruptcy lawsuit.

After the filing of a bankruptcy petition, there is a required meeting of creditors. This is called the 341 creditors’ meeting, named after the section of the United States Bankruptcy Code requiring the meeting. During this meeting, the creditors are given an opportunity to question the debtor under oath.

Creditors have 60 days from the date of the first scheduled 341 creditors’ meeting in order to file objections. A continuance of the 341 creditor’s meeting does not change the deadline for objections, because objections must be filed within 60 days of the first scheduled 341 creditors’ meeting.

The Bankruptcy Court’s Power of Discharge

Debtors are not necessarily entitled to discharge. The rights of the debtor will depend upon the type of bankruptcy the debtor has filed.

Under chapters 12 and 13 the creditors generally cannot object to the discharge like they can in a chapter 7 case. However, in a chapter 12 or 13 bankruptcy, creditors an object to confirmation of the repayment plan. Once the repayment plan is confirmed and the debtor completes all required payments under that plan, the debtor in complete compliance with the rules of the court will receive a discharge.

Appeal of the Bankruptcy Court’s Final Decisions

Bankruptcy Appellate Panels are 3-judge panels authorized to hear appeals of bankruptcy court decisions. These panels are a unit of the federal courts of appeals.

Bankruptcy Appellate Panels (BAPs) were established under the Bankruptcy Reform Acts of 1978 and 1994. 28 U.S.C. §158 sets forth jurisdiction for appeals of bankruptcy decisions and authorizes the establishment of BAPs upon the order of the circuit judicial councils.

BAP judges continue to serve as active bankruptcy judges in addition to their duties on the appellate panel.

Appeals from dispositive orders of bankruptcy judges may be taken to the district court or the BAP (if one has been established and the district has chosen to participate), with further appeal as of right to the court of appeals for the circuit.

In accordance with requirements of federal statutes and procedural rules, parties may elect to file an appeal of a bankruptcy court decision with the BAP or with the district court.

The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules”) and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases.

The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.

Bankruptcy Court in Each Judicial District

There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. There are 90 bankruptcy districts across the country.

The bankruptcy courts generally have their own clerk’s offices. The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts.

Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case.

Bankruptcy Petition

Bankruptcies are initiated by the filing of a petition by the debtor. The petition begins the case.

Bankruptcy Trustee

A bankruptcy trustee will be appointed to oversee the bankruptcy and perform certain tasks, such as liquidation in a chapter 7 bankruptcy proceeding.

Bankruptcy Schedules and Statements

After the petition, the debtor also must file schedules. These schedules will include necessary information, including the names and addresses of all creditors and assets of the debtor.

There are also certain statements the debtor must file. There are a series of questions the debtor must answer regarding the source of any income of the debtor, property transferred by the debtor, and lawsuits against the debtor by creditors.

Creditors’ Meeting

There is a meeting of creditors that must be held, pursuant to section 341 of the United States Bankruptcy Code. During this meeting the debtor will be asked questions by creditors. The bankruptcy trustee may also ask the debtor questions.

These questions will relate to the financial affairs of the debtor. The debtor must answer these questions under oath.

Creditors’ and Trustee’s Objections

Within a limited time period after the meeting of creditors, creditors or the bankruptcy trustee may file objections to discharge of the debts of the debtor. If no objection is filed, the court may grant the debtor an automatic discharge of debts owed. If an objection is filed, an adversary proceeding begins.

The Servicemembers’ Civil Relief Act (“SCRA”) is found at 50 U.S.C. app. §§ 501 et seq. The purpose of the SCRA is strengthen and expedite national defense by giving servicemembers certain protections in civil actions.

Purpose of the SCRA

By providing for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect servicemembers during their military service, the SCRA enables servicemembers to focus their energy on the defense of the United States.

Among other things, the SCRA allows for forbearance and reduced interest on certain obligations incurred prior to military service, and it restricts default judgments against servicemembers and rental evictions of servicemembers and all their dependents.

Bankruptcy Protections for Servicemembers

The protections in certain civil actions against servicemembers also apply in bankruptcy court.

The Federal Rules of Civil Procedure and the Federal Rules of Bankruptcy Procedure mention the SRCA. These rules make clear that the default judgment requirements of the SCRA which are designed to protect servicemembers apply in bankruptcy cases as well.

A default judgment is an order against the defendant in a case, imposed by the court, for the defendant’s failure to contest the allegations made by the plaintiff. The defendant loses by default. The interest our country has in ensuring that a servicemember’s top priority is the role he or she plays in the military is fostered by preventing default judgments from being entered against military members who may be otherwise unaware of a complaint or unable to answer its allegations.

Other Protections for Servicemembers

The SCRA provides protections in other areas of civil actions as well. If a servicemember receives notice of a civil action against him or her and receives notice of this action, the servicemember may ask the court to put a hold on the case. This hold is also called a stay. The proceedings are stayed under certain circumstances.

The court will stay the case for at least 90 days if the court is informed that the military member’s service duties affect his or her ability to appear in court and when the servicemember will be able to appear, and the servicemember’s commanding officer informs the court that military leave is not authorized at the time.

Who Qualifies for the Protections of the SCRA?

The SCRA applies to all members of the United States military on active duty, and to U.S. citizens serving in the military of United States allies in the prosecution of a war or military action.

The provisions of the SCRA generally end when a servicemember is discharged from active duty or within 90 days of discharge, or when the servicemember dies.

Portions of the SCRA also apply to reservists and inductees who have received orders but not yet reported to active duty or induction into the military service.