Debtors Can Recover Monies Taken Through Wage Garnishments 90 Days Before the Bankruptcy Filing

Posted by on Aug 26, 2011 in Chapter 13 Bankruptcy Issues, Chapter 7 Bankruptcy Issues, Wage Garnishments & Bankruptcy | 6 comments

A debtor should pursue recovery of the monies that were levied before the bankruptcy case was filed when the case trustee will not pursue the monies that were garnished.  In some cases, debtors are fortunate in that the sherriff is still in possession of the money; in these cases, debtors will typically receive the monies back from the sherriff once the trustee decides not to pursue it.   However, in cases where the creditor has already received the money, the debtor can still attempt to seek recovery of those monies under the Preference Transfer laws within the bankruptcy code.

Preference laws are intended to further the bankruptcy policy of equality of treatment between creditors.  Within the 90 day period before the bankruptcy case is filed, some creditors receive payment but many do not.  It does not matter whether the transfer was voluntary or involuntary.  The return of the transfers made during the Preference Period increases the assets in the bankruptcy estate.  Where an involuntary transfer took place within the Preference Period and the trustee decides not to pursue the recovery, a Debtor may seek recovery of the transfers made during the Preference Period.

The interplay between Bankruptcy Code Sections 547(b), 522(h), and 522(i), allows a debtor to recover preference transfers in cases where the trustee does not attempt to do so.  In certain cases, there may be an exception to liability on a preference claim based on U.S.C. §547(c) including the contemporaneous exchange transaction (COD), payments made in the ordinary course, and also the new value exception which under certain circumstances may qualify to reduce the preference claim.  However, those defenses typically do not apply to wage garnishments that fall under the category of preference transfers.  This means a debtor may be able to recover garnished wages that were taken within 90 days of the case filing.

It does not matter whether you are considering a Los Angeles bankruptcy, Orange County bankruptcy , or Riverside bankruptcy as these territories all fall under the Central District of California Bankruptcy Courts.  Consequently, the preference transfer laws of bankruptcy have the same effect.  At JCH Law Firm, we have experience recovering garnished wages and monies taken via bank levies.  I have recovered thousands of dollars for clients and recovered close to $10,000 for a client in one particular case.




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