Could Your Wages Be Garnished? Personal Bankruptcies Spike

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via AlterNet:



Posted by Adele Stan at 5:49 am
April 2, 2010

Could Your Wages Be Garnished? Personal Bankruptcies Spike


Two stories in the New York Times caught my eye. They don’t reference each other, but they would appear to be related. From today:

Pay Garnishments Rise As Debtors Fall Behind

and, from yesterday:

Steep Increase in March in Personal Bankruptcies

In his story on bankruptcies, Duff Wilson notes that, despite the tightened bankruptcy law passed in 2005, filings are up, especially for the Chapter 7 process, which requires filers to give up their homes if they own one:

“Fewer people are trying to save their homes,” Katherine M. Porter, a University of Iowa law professor and bankruptcy expert, said in an interview by phone on Thursday. “They realize their payments are not affordable, and bankruptcy judges do not have the power to adjust the mortgages to make them more affordable.”

But not everybody can afford to go bankrupt, as the average cost of filing adds up to $2000. So for someone like Leann Weaver, featured by John Collins Rudolph in his story on garnishment, who couldn’t pay off a credit card bill of $2,470, it’s unlikely that she could put together bankruptcy fees. When the bank holding her debt sued her, she didn’t appear in court. Now they’re taking one-fourth of her wages.

These kind of stories become particularly horrifying when they involve subprime lenders. From the Times:

The case of Sidney Jones shows how punishing the system can be. In January 2001, Mr. Jones, 45, a maintenance worker from California Crossroads, Va., took out a $4,097 personal loan from Beneficial Virginia, a subprime lender now owned by HSBC, the big bank.

He fell behind, and Beneficial sued. Mr. Jones did not appear in court. “I just thought they were going to take what I owed,” he said.

By default, Beneficial won a judgment of $4,750, plus $900 in lawyers’ fees, with the debt accruing interest at 27.55 percent until paid in full. The bank started garnishing his wages in March 2003.

Over the next six years, the bank deducted more than $10,000 from Mr. Jones’s paychecks, but he made little headway on his debt. According to a court order secured by Beneficial’s lawyers last spring, he still owed the company $3,965, a sum nearly equal to the original loan amount.

http://blogs.alternet.org/speakeasy/2010/04/02/could-your-wages-be-garnished-personal-bankruptcies-spike/