Wage garnishment is the very last resort agencies use to collect a debt.
Employing this recovery tactic forces you to pay outstanding bills, child support or alimony directly from money automatically deducted from your paycheck. Fortunately, wage garnishments don’t happen overnight. There are several steps an agency must take well in advance before the money disappears from your check. Restrictions are also in place to limit the amount of money that can be taken from your wage to resolve outstanding debt.
If you are overwhelmed by debt and fearful that you are at risk of wage garnishment, actively seek a resolution by speaking with your debt collector or consulting with a legal professional.
How Wage Garnishment Happens
For ordinary debts such as delinquent credit cards a court order is required to garnish your wages. When a credit card company can’t collect on your debt it may be sold to a collections agency. Before this process begins, you'll receive many letters concerning your debt and ample notice warning you of the court proceedings. Don't ignore these letters, as they won't go away. It is much easier to address a debt before it goes to judgment.
If the debt collector decides to sue you, you are at risk of having a judgment ruled against you. If they win the court judgment, you’re given time after the judgment to appeal. When that period passes, the creditor obtains a court order to garnish your wages. If it goes through, this judgment will appear on your credit report.
Having your wages garnished is an unpleasant situation to be in. Your employer is notified of your debt and receives a notice of wage garnishment. The employer is obligated to payroll deduct the money from your paycheck and the money goes toward repayment of the debt.
Wage Garnishment Limitations
Creditors can't take your whole paycheck even if you owe a large sum of money.
Title III of the Consumer Credit Protection Act (CCPA) limits the amount of money that can be garnished from your paycheck and sets other restrictions to protect consumers. For instance, your employer can't fire you for having your wages garnished - the first time. You are not protected from being fired if your wages are garnished for more than one debt.
The maximum amount that can be garnished is determined by your disposable earnings. According to Title III, disposable earnings is money left over after deductions required by law such as federal, state and local taxes, unemployment insurance, Social Security and certain retirement withholdings. Deductions including health or life insurance, union dues or charitable contributions are not required by law and may be considered disposable earnings.
Federal law states the limit that can be garnished from your paycheck weekly may not exceed the lesser of:
- 25% of your disposable earnings, or
- The amount by which your disposable earnings are greater than 30 times the Federal minimum wage
Let’s consider an example: If you have a weekly disposable income of $400 and minimum wage is $7.25, you get to keep $217.50 ($7.25 x 30) leaving $182.50 ($400 - $217.50) available for garnishment based on the first rule. However, 25% of $400 is just $100 and since it's the lesser of the two, that's what will be taken from your paycheck.
The Special Circumstances
There are a few exceptions when it comes to wage garnishment.
Title III doesn't apply to cases of default child support or Federal and state taxes. In fact, owing back child support allows for significantly more money to be taken from your check. Garnishment law permits up to 60% of your disposable income to be withheld depending on how many other people you support.
A court order is not required to garnish a portion of your disposable income to pay taxes. A tax agency can go directly to your employer to begin withholding and Title III doesn’t restrict how much money it can take. However, it’s a requirement that you’re notified of pending garnishment, so you should attempt to make payment arrangements before it occurs.
Delinquent Federal student loan debt can also be collected through a process called administrative garnishment, which allows for federal agencies to collect non-tax delinquent debt. Just like with taxes, under Federal law a government agency can go directly to your employer to garnish wages without a court order for repayment of a student loan. Up to 15% of your disposable income can be withheld. Before an administrative garnishment happens, you are given an opportunity to attend a hearing. If you can plead your case for hardship you may be able to avoid it.
All states allow wage garnishments for unpaid child support and taxes. However, Pennsylvania, North Carolina, Texas and South Carolina don’t allow wage garnishment by creditors. Other restrictions, like how much of your income can be garnished varies from state-to-state. If your state's law is different than the Federal law whichever law results in you paying less money is the one that takes precedence. Check your state laws and regulations to find the restrictions relevant to you.
Preventing Wage Garnishment
Communication is key.
If you're receiving notices that a debt collector intends to sue, be proactive and do something about it right away. Negotiating a settlement or payment plan is a viable option. Wage garnishments are an expensive hassle for you and the debt-collecting agency, so arranging a mutually beneficial plan of action is convenient for both parties. Consider hiring a legal professional to guide you through the process of working out an arrangement that saves you from the consequences of a wage garnishment.