Wage Garnishment: How It Works & What To Do
Wage garnishment is when a portion of your monthly income is confiscated in order to gradually satisfy unfulfilled financial obligations – such as unpaid credit card debt, child support payments or taxes. In cases of debt originating from credit cards or most loans, your wages cannot be garnished without a court order. But that rule doesn’t apply to the government’s pursuit of income taxes, student loan payments, child support and alimony.
We often hear stories of people being surprised by wage garnishment, and this can indeed happen for a number of reasons. The first is a process known as “sewer service,” whereby debt collectors lie about sending proper notices and consumers wind up having default judgments levied against them at court hearings they were not notified about. The second reason is the so-called “setoff” process, which enables lenders to exercise their right to collect unmade payments if you have the necessary assets, thereby removing funds from your bank account without court approval.
Below, we’ll explain when wages can be garnished, what wages can be garnished and how the garnishment process works, in addition to surveying industry experts about the latest wage garnishment trends. We also recommend contacting an attorney who specializes in wage garnishment to help with your case.
When Wages Can & Cannot Be Garnished
Wage garnishment typically is one of the last stops on a long road of debt collection. You’ll likely receive countless warnings before a cent is taken from your paycheck, which means you’ll have at least some opportunity to correct course and address your debt problems before garnishment actually occurs. This might include exploring debt management, settlement, consolidation or even bankruptcy.
Keep in mind that if one of your creditors discovers that you have assets that could be used to pay off what you owe, they may opt to instead seek a court order for a bank levy as a means of repayment. However, this strategy is more common when the government is collecting, as opposed to a private party.
In any case, it’s important to understand your rights in regards to wage garnishment. Different rules exist at the federal and state levels, and we’ll explain both below.
In most cases, including those involving unpaid credit card and loan balances, debt collectors may garnish up to 25% of your disposable wages or the amount by which your income exceeds 30-times the federal minimum wage – whichever is less.
Garnishable Wages = (Disposable Income * 0.25) OR (Disposable Income – (30 * Federal Minimum Wage))
Disposable income is calculated by subtracting standard tax obligations and other applicable withholdings from your gross earnings. However, he following types of income are not considered for these calculations and cannot be garnished in most cases.
- Social Security
- Disability Benefits
- Pensions, 401(k)’s, IRAs and Other Retirement Funds
- Child Support
Collecting federal income tax, child support and alimony obligations are the primary exceptions to these standards. As much as 60% of your disposable wages can be garnished in cases of unpaid alimony or child support obligations, and Social Security as well as other retirement benefits can be used to repay federal income taxes and child support.
In cases where federal and state rules conflict, the federal rules will supersede the state ones.
State wage garnishment laws often are more lenient than their federal equivalents. They apply in cases of local commerce, including state taxes and accounts held with state-chartered financial institutions. You may also be able to use discrepancies between your state’s laws and federal rules – such as the percentage of your income that is protected from garnishment – as “exemptions” in a federal case. In other words, you can appeal to the court and argue why the particular state regulation would be more appropriate in your particular situation.
One of the most significant distinctions that exist between state and federal wage garnishment rules is the treatment of “commercial” debt in North Carolina, Pennsylvania, South Carolina and Texas. These states do not allow wages to be garnished for debts originating from over-the-counter financial products, such as credit cards and auto loans.
How Wage Garnishment Works
Wage garnishment is a multi-step process that typically follows a number of other debt collection efforts. Below we’ll give you a breakdown of how a debt makes its way to garnishable territory as well as the basic steps of the garnishment process. Keep in mind that federal and state government liabilities such as unpaid income taxes and child support will differ slightly from the process explained below, as a court order will not be required for wage garnishment. In such cases, steps 3 and 4 will not be included.
Phase 1: Your Account Becomes Seriously Delinquent
Don’t worry. Wages aren’t garnished after a single missed payment. For example, credit card companies won’t even report you to the credit bureaus as being late until you’ve missed two consecutive monthly minimums.
With that being said, the cost you incur will become increasingly significant as delinquency progresses. The same will be true of the correspondence you receive from your lender, asking for payment.
Phase 2: Collection Efforts Intensify
Lenders typically sell delinquent and defaulted accounts to independent debt collection agencies. While the lenders take a financial hit and sell the bad debts at less than face value, they are happy to cut their losses and time investment in obtaining payment from you.
The problem with these debt collection firms is that they often badger people into agreeing to pay debts time-barred by the statute of limitations or balances that lack the proper documentation. They’re also notorious for failing to properly notify consumers about upcoming court proceedings, hoping to increase the odds of a no-contest victory in court.
Phase 3: You Get Sued
If the debt collector is unable to obtain repayment through other means, they will likely file a lawsuit against you. In fact, debt collectors are only allowed to threaten suit if they are actively considering it, so it’s a good idea to consult legal representation if that ever happens.
If you think a debt collector might sue you, make sure to be accessible for service or the delivery of certified mail carefully check your mail for notices. Failing to appear in court is the easiest way to lose, and there are a number of steps you can take to make sure that doesn’t happen if you just show up.
Phase 4: The Court Issues A Judgment
If you don’t show up to court, what’s known as a summary judgment will be issued against you. This basically allows the plaintiff’s account of what transpired to stand, as you’re effectively waiving your right to defend yourself. That’s what you don’t want to have happen.
What you should do is appear in court and state whatever issues you have with the suit – whether it’s time-barred, not supported by the proper documentation, or another reason. At the very least you’ll be giving yourself a fighting chance, and at best you’ll be saving yourself from unnecessary defeat.
Phase 5: Garnishment Begins
Garnishment entails shaving a percentage off each of your paychecks and typically lasts for a specified period of time or until a designated percentage of your debt is repaid. The process may be suspended only in select circumstances, such as when you can prove financial hardship.
Step 6: Garnishment Continues Until Resolved
You may be able to negotiate an earlier end to wage garnishment either directly with the debt collector or in your initial court hearing. Otherwise, garnishment may last until your balance is repaid or until a specified date.
How To Avoid Wage Garnishment
The best way to avoid wage garnishment is to stay on top of your payment obligations and never overextend yourself. Here are a few tips for keeping your financial house in order and wage garnishers at bay.
- Make A Budget: Step one in getting your financial footing is to make a budget. This will give you a sense of where you’re hemmoaging funds, if anywhere, and will help you make a plan for achieving your financial goals.You can learn more in WalletHub’s How To Budget Guide.
- Fatten Up Your Emergency Fund: Even before setting your sights on debt freedom, it’s important that you begin setting aside money, just in case. Without this safety net, getting out of debt will still only leave you one misstep away from once again carrying revolving balance. You’ll ultimately want to save at least 6-months’ of take-home pay, but you can start by putting away a month or two’s worth before focusing on debt repayment.
- Get A Secured Card: A secured credit card requires users to place a refundable security deposit, which doubles as their spending limit. This keeps fees low and makes it impossible to spend beyond your means. Using one will therefore give you the credit-building benefits of plastic without the risk.For more information about secured cards, check out our Secured Card Guide. And to compare offers, visit our Secured Credit Cards product page.
- Cut Up Your Credit Card: If you can’t trust yourself to spend responsibly with an unsecured credit card, but you want to keep one open because it boosts your available credit, just cut up the plastic. Assuming you’re up to date on payments and there are no annual fees to worry about, your account will continue reporting positive information to the major credit bureaus each month.
- Try The Island Approach: One way to keep debt in check is to designate one credit card as being your everyday spending vehicle. Since you should be able to pay for these regular expenses without going into debt, seeing finance charges appear on this account will signal that you’re overspending. Pairing this card with a 0% card for financing big-ticket purchases or reducing the cost of existing debt is quite helpful as well.
- Maximize Retirement Contributions: Money earmarked for retirement is not subject to garnishment, so if you’re not currently maxing out your 401(k) or IRA contribution, you’re leaving money unnecessarily exposed.
How To Deal With Wage Garnishment
Consumers can mitigate the effects of wage garnishment in a number of ways, from protesting its very enforceability to minimizing your garnishable wages. We’ll give you a quick overview of these strategies below. For a more detailed look at managing wage garnishment, as well as fighting it, check out our guide on How To Stop Wage Garnishment.
- Protest The Garnishment: If your wages are to be garnished, your employer is required by law to inform you of your right to protest the garnishment. What’s more, the paperwork you receive explaining the garnishment will detail how to appeal the court’s ruling as well as the timeframe in which you are required to do so.
- Research State Exemptions: If your state’s laws are more favorable to people in your financial situation than federal statues, you can try to invoke a state exemption to protect certain income and assets. You can do so by filing a letter with the court that issued the garnishment order.
- Explore Debt Settlement & Management: Debt collectors are opportunistic. If you can devise a scenario whereby the debt collector gets paid in some form without having to jump through a lot of hoops, they may just go for it. One example of this is debt settlement, which involves offering to repay a certain percentage of your debt in one lump-sum. Another option is debt management, which entails setting up a payment plan that allows you to satisfy the majority of your debt over time. Certain fees and finance charges may be forgiven with debt management as well.
- Consider Bankruptcy: Bankruptcy is a rather drastic measure, but if you’re mired in debt and you’ve already incurred the credit score damage associated with defaulting on your balance, it’s probably worth at least looking into. If you’re going to have a third-party’s hand in your proverbial pocket, it might as well be part of a highly structured process that provides you with a light at the end of the tunnel.You can read out guide on When & How To File For Bankruptcy for more information. Scheduling a free consultation with a bankruptcy attorney is a wise move as well.
Fact Checked By
Mike is an attorney at Chase & Bylenga, PLLC with a focus on bankruptcy, taxation and business. He earned his JD from Thomas Cooley Law School and a Master's of Laws in Taxation from Western Michigan University.
Ask The Experts: Predatory Wage Garnishment
We posed the following questions to some of the leading minds studying wage garnishment to see what tips they might have for consumers as well as to get their take on the latest market trends. You can find their bios and responses below.
- Does a debt collector need separate court orders for wage garnishment and a bank levy?
- Since many credit card contracts contain mandatory arbitration clauses, does that mean an arbitrator can make a legally enforceable garnishment order?
- How does the setoff process work? Does it enable debt collectors to use a bank levy without a court order?
- What are the best ways for people to protect their wages for garnishment? And what unscrupulous practices should people be on the lookout for?
Image: Africa Studio / Shutterstock
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