One reader of my Indiana bankruptcy blogs is concerned about his unemployment benefits, asking whether creditors can garnish those benefits. The general answer to his question is “No.” Creditors cannot garnish unemployment unless it’s for child support or alimony and/or unless unemployment funds have been deposited because they then lose their protection. Creditcards.com adds that states cannot garnish payments from the federal government, and, conversely, the federal government cannot garnish payments from the state. On the other hand, if you owe money to the state, the state can garnish your unemployment benefits.
By way of review, garnishment is a court-ordered process that takes property or earnings from a person to satisfy a debt. All the states allow garnishment for alimony, child support, federal student loans, and taxes. However, once unemployment funds have been deposited it loses its protection.
For other debts, the creditor would first need to get a court judgment, and then “get in line”, because there are limits in each state on how much of a person’s wages can be garnished. In the state of Indiana the wage garnishment limit is the lesser of 25% of disposable earnings or the amount of disposable earnings that exceed 30 times the federal minimum wage.
I helped write the exemptions portion of Indiana bankruptcy law, so I can reassure readers that in a Chapter 7 bankruptcy filing, you can almost always keep unemployment compensation, workmen’s compensation, and crime victim’s compensation benefits. Other exemptions include property worth less than $8,000, individually prescribed health aids, most retirement plans, most pensions, life insurance policies, and medical care savings policies.