In my Iowa bankruptcy practice I allow people to pay for their attorney’s fees over time. The client can pay a small retainer to commit to a contract between us and then take as long as they need to pay off the balance–interest free. (Of course, a chapter 7 case cannot be filed until all the fees and costs are paid lest I be a creditor of the estate and discharge the debt against my self. Not bright and also a violation of the law).
Now this is a nice benefit to the clients. They like it and it helps them deal with troubling if not traumatic financial circumstances. There is no boring deeply into their pockets, taking money from the necessity part of the budget–food, roof and a way to get to work. But there is always some black hole associated with the clear space to travel. This week I have had several clients who are facing such a hole–known as garnishments.
These clients are being sued. Only a bankruptcy filing can stop the suit. As they do not have the bankruptcy filing account paid off, a judgment will be obtained by the creditor who will then start taking a percentage of the client’s wages. Now these clients are in a bind.
The amount taken depends on the disposable income level (i.e. gross income minus taxes). The percentage ranges from nothing for very low income people–making less than $1,256.57 per month–to 25% of the disposable income over the $1,256.57 per month. This applies to consumer credit judgments. For non-consumer credit the 25% garnishment is applied to amounts over $942.50 per month. (Note that social security checks are fully exempt–not considered wages for this purpose).
There is a maximum amount allowed to be taken by each creditor, each calendar year. For earnings (which is the gross amount):
Over $12,000 it is $400;
Over $16,000 it is $800;
Over $24,000 it is $1,500;
Over $35,000 it is $2,000; and
Over $50,000 it is 10%
For past due Iowa taxes, there are no exemptions, no expiration date and the percentage is 100%! (I know people who have quit their jobs and moved to other states to avoid this).
As one can easily compute, once the garnishment starts, getting the fees paid for bankruptcy becomes very hard. In fact, even paying rent/mortgage or getting food becomes extremely difficult. Often, potential clients come to see me for the first time when the garnishment actually begins–even though they had some strong indications that a judgment and garnishment were looming in the air and they could have had the bankruptcy paid for before the suit.
So it is very important to recognize that even though one does not want to file bankruptcy, one may need to do so, and the earlier one takes an honest look at the horizon and admits the foul weather coming in, the better off one will be when the storm strikes.
See a specialist, an Iowa Bankruptcy attorney, as soon as one even thinks that one is on a slippery financial slope.
Iowa Bankruptcy Attorney Robert Liptak
Fairfield, Iowa