Wage Assignments and Bankruptcy
Increasing collections costs is prompting some creditors to turn to voluntary wage assignments. A wage assignment is basically an agreement that allows the creditor to deduct from a debtor's wages any amount owed to them. This is most often used by payday loan lenders. Borrowers sign a bunch of paperwork, which includes a wage assignment signing over access to their wages in the process. Let's take a look at wage assignments and how bankruptcy treats them:
Do You Have A Wage Assignment?
It may be tricky to find out if you signed a wage assignment unless you have a copy of the paperwork. However, if you took out a payday loan or any other small loan you probably signed a wage assignment.
What Does The Wage Assignment Do?
Once a debtor stops making payments on their debts, any wage assignment signed goes into effect. This means that the creditor sends a letter to the debtor's employer requesting a portion of the debtor's wages. If the debtor has not yet filed bankruptcy, the employer will send the requested amount as long as the wage assignment proof is provided.
How Does Bankruptcy Stop Wage Assignments?
Once a debtor decides to file bankruptcy, they must let their bankruptcy attorney know about the wage assignment. Even if the wage assignment has not yet gone into effect, the bankruptcy attorney must know about it. The attorney will then send a letter to the lender telling them that the wage garnishment is revoked. It may be wise for the debtor to revoke the wage assignment even before they file bankruptcy, especially if they have already stopped making payments. Revoking a wage assignment only requires that the debtor send a certified letter stating that they are revoking the wage assignment.