"Also, once you file, anything that was taken from you via garnishment within the 90 days PRIOR to your filing, will be returned to you."
*** Not true.
The Bankruptcy Code permits a trustee (or a debtor in possession) to recover from creditors payments made shortly before the bankruptcy filing where the payment gave the creditor more than other, similarly situated creditors would get through the bankruptcy process.
The policy behind the statute is to diminish the advantages that a creditor might get by litigation or by aggressive collection actions that force the debtor into bankruptcy. That is accomplished by making the payment recoverable in bankruptcy.
It is neither wrong of the debtor to make a preferential payment nor wrong of a creditor to accept it (under California law). Creditors are almost always better off attempting to get payment of their claims from their debtors and dealing with any efforts to recover the money when, and if, such attempts are made in bankruptcy.
Is it a preference?
Bankruptcy Code 547 defines a preference as
1. Payment on an antecedent (as opposed to current) debt;
2. Made while the debtor was insolvent;
3. To a non insider creditor, within 90 days of the filing of the bankruptcy;
4. That allows the creditor to receive more on its claim than it would have, had the payment not been made and the claim paid through the bankruptcy proceeding.
As you can see from the above, the garnishment of wages would likely NOT qualify since the debtor was NOT insolvent at the time they were made.
In addition, the garnishor has the right to file a defense against the return. Defenses to the recovery of a preference are found in 11 U.S.C. 547(c). Payments that are safe from recovery include contemporaneous exchanges; payments made in the ordinary course of the business of the debtor and the creditor on ordinary business terms; and security interests that secure debts that bring new value to the debtor.
A non obvious preference may occur when the creditor converts an unsecured debt to a secured debt by recording a financing statement long after the transaction with which it was associated; by obtaining a writ of attachment; or by recording a judgment lien. Creditors are best served by the prompt perfection of such liens to lessen the possibility that the advantage obtained by getting the lien is lost in a preference recovery action in a subsequent bankruptcy.
