Most people assume that if they file for bankruptcy, the same wage protections that shield a paycheck from creditors will shield their income no matter how they earn it. A recent Iowa Supreme Court decision is a reminder that this assumption can be wrong for self-employed debtors, small business owners, and gig workers.
In Green Belt Bank & Trust v. Van Mill (Iowa Supreme Court, filed March 6, 2026), a creditor holding a $2.6 million judgment tried to collect by garnishing money that Unverferth Manufacturing Company owed to Mashon Van Mill for his work. Iowa Code section 642.21(1) limits how much of an “employee’s” earnings can be garnished in a calendar year, using a sliding scale tied to the federal Consumer Credit Protection Act. Higher earners get less protection under the formula, but the protection still exists. The question was whether this limit protected Van Mill, since everyone agreed he was not Unverferth’s employee. He was an independent contractor, paid through invoices under a business name.
The Iowa Supreme Court held that the statutory protection for wages does not apply to independent contractors. “Employee,” the court reasoned, has a specific legal meaning that is distinct from “independent contractor,” and the legislature used only the word “employee” in the garnishment statute. Because the two terms describe mutually exclusive categories under Iowa law, and the legislature did not extend the protection to independent contractors, the courts cannot rewrite the statute to cover them. In doing so, the court overruled a 1989 Iowa Court of Appeals decision, Marian Health Center v. Cooks, which had applied the garnishment cap to an independent contractor’s income. Bankruptcy courts had also adopted a broad interpretation that treated a self-employed debtor’s income the same as an employee’s wage income.
The practical lesson extends beyond garnishment disputes and into bankruptcy proceedings. Iowa’s exemption and earnings-protection statutes were written with traditional employment in mind. A bankruptcy trustee stepping into a creditor’s shoes may be able to reach money owed to a self-employed debtor, freelancer, or gig worker in full, without the percentage caps that would apply to a W-2 employee’s wages. Business receivables, invoices, and 1099 income don’t automatically get the same shelter as a paycheck. In bankruptcy, this is primarily an issue for money held in bank accounts or account receivables. Income received after filing bankruptcy is not a problem but money from self-employed income held or owed on the date of filing may not be protected to the same extent as wages.
If you’re self-employed, run a small business, or rely on gig or contract work, it’s worth talking to a bankruptcy attorney before you file, not after. How your income is structured and characterized can significantly affect what a trustee is entitled to collect, and planning ahead matters far more than it does for a traditional employee. It’s also worth contacting Iowa state legislators to ask that they overrule the Supreme Court’s Green Belt Bank decision by clarifying that the self employed are entitled to the same protections as an employee.
This post is for general information only and is not legal advice.
