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With the exception of state and federal tax debts, federal student loans, and most debts owed to the federal government (including SBA loans), creditors must first obtain a court judgment before they can garnish wages. However, the federal government and state tax agencies can bypass this step through a process known as “administrative garnishment,” which allows them to garnish wages without a court order.

If a debtor files for bankruptcy under any chapter of the U.S. Bankruptcy Code—typically Chapter 7 or Chapter 13—all wage garnishments must cease immediately, with the exception of those related to alimony or child support.

Under 11 U.S.C. § 362, the filing of a bankruptcy petition “operates as a stay, applicable to all entities, of—

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;

(7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor;”

Many payroll departments are often uncertain about how to proceed when an employee files for bankruptcy, mistakenly believing they need a court order or creditor release to stop a garnishment. However, that’s not the case. Under 11 U.S.C. § 362, the “automatic stay” is triggered immediately by law upon the filing of bankruptcy and applies to all entities—including employers.

In fact, most wage garnishments include a self-executing provision that directs employers to stop garnishments if the employee files for bankruptcy.

Moreover, once a bankruptcy filing is made known, garnishing creditors and their attorneys are obligated to promptly release the garnishment. Failure to do so can result in substantial sanctions for violating the automatic stay. In re Namen, 649 B.R. 603 (Bankr. M.D. Fla. 2023).