Study: garnishment may prompt bankruptcy
Tuesday, July 7th, 2009
By: Tom MacDonald
tmacdonald@whyy.org
A review of bankruptcy filings in America shows five states with much fewer filings. The states have one major difference in their bankruptcy code. Pennsylvania along with North Carolina, South Carolina, Texas and Florida, prohibit or limit taking part of a person's paycheck.
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The bankruptcy rate in those states is more than 40 percent below the national average. because a key reason people file is it stops the attachment of a paycheck to pay outstanding debt. Juliet Moringiello teaches bankruptcy law at the Widener School of Law. She says not attacking wages gives people a better opportunity to pay their debt.
Moringiello: We want to give people an incentive to work and if people have a large percentage of their wages garnished they might not have incentive to work.
Debt collectors that go after wages can push people to bankruptcy court where a bankruptcy judges can reduce or wipe away several financial obligations. A collections attorney says not being able to go after a person's paycheck limits their ability to collect bad debt.
Pennsylvania prohibits wage garnishment, except in special circumstances.