Upon the filing of a bankruptcy petition, all collection activity is immediately stopped, including ongoing lawsuits and wage garnishments.  What few people or their attorneys are aware of, however, is the power of bankruptcy to recover garnished wages and bank accounts that take place in the 90 days prior to filing bankruptcy.

In a recent case, the Nebraska Bankruptcy Court ruled that debtors have the power to recover garnished bank account funds taken within 90 days of filing bankruptcy.  In the Matter of Tina Travis, (2010 Bankr. LEXIS 2732), $4,655.35 was garnished from her bank account approximately one month prior to filing bankruptcy.  The debtor was able to exempt $2,227.29 of those fund under the Nebraska Wildcard exemption of 25-1552 and reported that amount on Schedule B of the assets schedules as an “Involuntary Preference Payment.”  Preference payments are defined as garnishments exceeding $600 that occur within 90 days of filing bankruptcy.  (See Bankruptcy Code Section 547).

The Chapter 7 Trustee was able to recover the garnished funds, and then proceeded to object to the debtors exemption claim.  However, Bankruptcy Judge Timothy J. Mahoney ruled that under Bankruptcy Code Section 522(g), the debtor’s right to recover these funds is superior to that of the Chapter 7 Trustee if the debtor has available exemptions to protect the garnished funds. 

If you have been garnished by more than $600 within 90 days of filing bankruptcy, it is very important to tell this to your bankruptcy attorney so that the proper action may be taken to recover the funds.