Garnishment is a legal procedure used by creditors to collect debts that are owed to them. It is generally applied in cases where accounts are at least six months past due and no effort has been made by the debtor to establish a repayment arrangement.
In wage garnishment, an employer is ordered by a judge to withhold some portion of an indebted individual’s earnings from wages, salaries, commissions, bonuses and/or income from a retirement plan or pension, and use those garnished funds to pay back a creditor.
A creditor must get the right to garnish someone’s earnings in a court of law. After the creditor — which can be a utility, a bank, a business or an individual — wins a lawsuit against a delinquent debtor, a notice called a Writ of Garnishment is sent to the debtor’s employer. The creditor is now called the garnishor and the employer, or the garnishee, is legally responsible to comply with the court order.
Limits on Garnishment
Once the court issues a Writ of Garnishment, the debtor loses control over a share of his or her earnings. However, provisions under the federal Consumer Credit Protection Act (CCPA) protect employees from overly burdensome garnishments by limiting the amount of money that can by withheld from disposable income. Disposable income is the amount left after taxes and Social Security are subtracted. Deductions not required by law — such as health and life insurance, union dues, charitable contributions and voluntary retirement plans — may not be subtracted when calculating disposable income.
Under the CCPA’s Title III, the maximum weekly garnishment cannot exceed the lesser of 25 percent of the employee’s disposable earnings, or the amount by which those earnings are greater than 30 times the federal minimum wage — currently $7.25 per hour.
For example, if disposable income is $217.50 ($7.25 × 30) or less, there is no garnishment. If disposable income is more than $217.50 but less than $290 ($7.25 × 40), the amount above $217.50 can be withheld. If disposable income is $290 or more, a maximum of 25 percent can be garnished.
Title III also protects a debtor’s right to continue working — employees cannot be discharged because their wages have been garnished for one debt. However, it does not protect against discharge if the employee’s wages are subject to garnishment for two or more debts.
The following situations have unique rules:
- Child or spousal support: Failure to pay court-ordered payments for spousal or child support is a common reason for garnishment. In these cases, the law allows for as much as 50 percent of one’s wages to be garnished if the debtor is supporting another child or spouse who is not the subject of the support order, and up to 60 percent if the debtor is not supporting anyone else.
- Federal tax debt: If money is owed for federal taxes, a court order is not required to garnish wages. In these cases, the Internal Revenue Service (IRS) sends the debtor a Notice of Demand for Payment, followed by a Final Notice, giving the debtor 30 days to make restitution. If the payment, commonly referred to as a levy, is not forthcoming, the IRS will contact the debtor’s employer to begin garnishment.
- Other types of federal debt: The Debt Collection Improvement Act of 1996, under its administrative wage garnishment provision, authorizes federal agencies, or collection agencies contracted with them, to garnish up to 15 percent of a wage earner’s disposable income to repay defaulted non-tax debts owed to the federal government. In addition, the Department of Education can require its guaranty agencies to garnish up to 10 percent of a debtor’s disposable earnings to repay defaulted federal student loans.
- Checking or saving accounts: A judgment creditor can garnish a debtor’s savings or checking accounts with no restrictions. Therefore, a bank can turn over all or part of an account to satisfy a judgment.
- Bankruptcy court orders: While a Chapter 13 bankruptcy filing may provide immediate protection against garnishment of wages or bank accounts, it does not protect a debtor from garnishment once the bankruptcy court has ordered a repayment plan for any debts and obligations owed.
State Garnishment Laws
Each state has its own garnishment laws. Any state law that is more restrictive, resulting in smaller garnishments, takes precedence over the federal law. If a state law is less restrictive, the federal law prevails. While all states allow wage garnishment for child support and unpaid state taxes, four states — North Carolina, Pennsylvania, South Carolina and Texas — don’t allow wage garnishment for creditor debts.
Some states exempt a debtor from wage garnishment if he or she is the head of household — an unmarried person who financially supports a dependent and pays more than half of the cost of maintaining a home.
Individuals who receive military pay and owe debts to the federal government can have judgments placed upon them, and their pay garnished by the Defense Finance and Account Service (DFAS), an agency of the U.S. Department of Defense.
If you are facing garnishment, you should do the following:
- Validate any debt you are asked to pay by contacting the creditor or collection agency and asking for proof of the obligation.
- Respond to any court summons. Failure to show up at a court hearing will likely ensure a garnishment judgment against you.
- Explore all available alternatives to avoid wage garnishment, including debt settlement and debt consolidation.
Once initiated, wage garnishment will generally continue until stopped by court order or until the debt is paid in full. It is better to be proactive and avoid garnishment by working out a repayment plan with your creditors.