In both wage garnishment and bankruptcy, disposable income is a deciding factor in a person’s financial future. A wage garnishment occurs when a creditor attaches an outstanding debt to an employee’s weekly or biweekly earnings. Bankruptcy is the legal process of cancelling or repaying debts over time.

Disposable income has two definitions, depending on whether an individual is going through a wage garnishment or bankruptcy. With a wage garnishment, disposable income is the amount of money left after an employer has made all the required deductions. Disposable income in bankruptcy refers to the money left over after an individual has paid all monthly bills. Disposable income is also called disposable earnings.

What are Considered Deductions?

Deductions are typically local, state, and federal taxes. It also includes any mandatory state required contributions and current child support orders.

If I Have a Wage Garnishment, What Will Happen with My Disposable Income or Earnings?

An employer can deduct up to 25 percent from the money left after all deductions. The employer will take 25 percent from the employee’s paycheck and send it to the creditor(s). The employee will receive the remaining balance.

What is Disposable Income in Bankruptcy?

Disposable income in bankruptcy refers to the money left over after an individual has paid all monthly bills. These monthly bills include:

  • Rent
  • Mortgage
  • Utilities
  • Any child support
  • Any supposal support
  • Insurance such as homeowner or car insurance

What Difference Does It Make If I Have Disposable Income When Filing For Bankruptcy?

An individual with enough disposable income will typically qualify for Chapter 13 bankruptcy. Chapter 13 is a reorganization bankruptcy process that allows a debtor to pay debts over a three-year or five-year period. If a debtor doesn’t have enough disposable income, Chapter 7 bankruptcy may be an option. Chapter 7 bankruptcy pays off debts by selling the debtor’s property, minus protected properties.

Do I Need Help From an Attorney Regarding Wage Garnishment or Bankruptcy?

It’s in your best interest to contact a bankruptcy lawyer for help to stop a wage garnishment or to file for bankruptcy. You’ll understand your options and how to resolve your legal issues.