THE NEW GARNISHMENT LAW IN COLORADO
There is a new garnishment law in Colorado. For many years wages have been exempt to some extent in Colorado. An exemption means it cannot be taken by the judgment creditor or the bankruptcy trustee. Wage exemptions are crucial for bankruptcy purposes because the Colorado state exemptions are the only bankruptcy exemptions a Colorado resident debtor may claim in a Colorado bankruptcy. Whether a debtor is deemed a Colorado resident who may claim the Colorado exemptions is not discussed here.
THE NEW 80% RULE
Under the new garn law, most disposable earnings are 80% exempt from execution. Earnings include both W-2 type wages and independent contractor wages for personal labor or services. In most cases, disposable earnings mean your wages, less deductions for taxes and health insurance, i.e. net wages.
For example, your paystub states that at the end of the month you are paid $5,000 gross wages, less deductions of $1,000 for taxes, and $600 for health insurance. Your disposable earnings are $3,400. In most cases, if your paystub was garnished by a judgment creditor you would receive $2,720, equal to 80%, and the attaching party would receive $680, constituting 20% of the disposable earnings.
Prior Colorado law only gave a 75% exemption to the wage earner and 25% would go to the attaching party.
EXCEPTIONS TO THE 80% RULE
The chief exception to the 80% rule is the state or federal hourly minimum wage. If the individual’s disposable earnings are equal to the federal or state minimum wage they cannot be garnished. If the wages are just beyond the state or federal minimum wage then it is the lesser of 20% of disposable earnings or the amount that exceeds forty times the state or federal minimum hourly wage.
The 80% exemption does not apply to child support and family support orders, Chapter 13 court orders, and debts for state and federal taxes.
APPLICABILITY TO CHAPTER 7 BANKRUPTCY
After a Chapter 7 bankruptcy has been filed, the Chapter 7 trustee will require the debtor to disclose any wage garnishments in the last 90 days before the filing. If over $600, the trustee will require the garnishing party to disgorge the money to the trustee.
The bankruptcy trustee will also determine what disposable earnings were owed on the date of filing. The bankruptcy trustee may require a turnover of the non-exempt portion of the disposable earnings. Timing the filing so there is little in disposable earnings owed on the date of filing may be helpful in certain cases
Have your financial situation considered by an experienced bankruptcy attorney and former Trustee for the U.S. Bankruptcy Court. Call or contact LONG & LONG P.C.now at 303-832-2655, or www.denverbankruptcylawyer.net.