Wages Exemption in Bankruptcy -- Protecting Your Paycheck

Protecting Your Wages in Bankruptcy

Wage protection in bankruptcy depends on both federal and state exemptions:

• Federal wage garnishment limit: Under the Consumer Credit Protection Act, only 25% of disposable earnings can be garnished (or the amount by which weekly earnings exceed 30 times the federal minimum wage, whichever is less).
• Bankruptcy automatic stay: Filing bankruptcy immediately stops all wage garnishment under the automatic stay (Section 362).
• State exemptions: Many states have additional wage exemptions that protect more of your paycheck. Some states (like Texas and South Carolina) have very strong wage protections.
• Wages in bank accounts: Once wages are deposited into a bank account, they may lose their status as "wages" and become cash -- which has different exemption rules. Some states specifically protect deposited wages for a period of time.