When a Debtor owes money to creditors that he cannot repay, said creditors will generally take legal action to try and recover what was owed to them. These creditors must first obtain a judgment against the borrower and then they can either garnish a borrower's wages, levy against a bank account, levy against a state or city tax refund, or issue a “Writ of Execution” which allows them to grab the borrower's personal property such as vehicles or home furnishings.
When a borrower owes money that he cannot repay the creditor simply cannot start garnishing or grabbing the borrower's assets. The creditor must first obtain a judgment. This entails the creditor filing a lawsuit in local district court and then serving said lawsuit on the borrower. The borrower can be served in one of two ways, either by personal service where a Court Officer personally hands over the lawsuit to the borrower or by certified mail.
If the borrower is served via Court Officer, he would have 21 days from the date which he was served to file a response. If the borrower was served via certified mail, then he would have 28 days to respond. If the borrower files a response to the lawsuit, then the Court would set up a hearing and the Judge would enter a “Judgment” determining whether there was a debt owed and how much was actually owed. If the borrower does not file a response, the lender would obtain a “Default Judgment”.
Once the lender has a judgment, whether by Judge or by default, it can proceed with collection. The lender can garnish the borrower's wages (up to 25%), or it can grab a bank account. The lender can garnish any bank account that has the borrower's name on it, even if the money inside the account did not belong to the Debtor. This because under Michigan State law, if a person's name is on a bank account, then that person is presumed to be an owner of that account. The lender can grab what is in the bank account up to the extent of the judgment. In other words, if lender has a judgment for $1,000, he can grab anything up to $1,000 that is in the bank account.
The third thing a lender can do once it has obtained a judgment is to execute against a state or city income tax refund. The lender cannot execute against a federal income tax refund. Only the federal government can execute against a federal income tax refund.
The fourth thing a lender can do is obtain a “Writ of Execution” from the same Court from where it obtained the judgment and then start repossessing Debtor's personal assets such as a vehicle or home furnishings.
There is no particular order as to how a lender that has obtained a judgment can execute to collect the judgment. The lender can do a wage garnishment or levy against a bank account, or both.
The filing of a bankruptcy, whether Chapter 7 or Chapter 13, will stop collection activity and render the State Court judgment null and void. It does not matter whether the bankruptcy was filed before the judgment was obtained or after. However, if the bankruptcy is filed prior to a garnishment, then the garnishment cannot take place. If the bankruptcy is filed after garnishment, the garnishment must stop but whatever collateral the creditor was able to garnish prior to the bankruptcy being filed is generally now lost to the borrower. Therefore it always makes sense to file bankruptcy before a garnishment actually takes place.
If you are facing a wage garnishment, contact the attorneys of Joseph L. Grima & Associates P.C. to learn your rights.