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.
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Wage garnishment is a subject people want to avoid talking about, but if your wages are being garnished that is exactly what you should be talking about.
Wage garnishment is a legal procedure in which a judge orders an employer to withhold a portion of the indebted individual’s earnings and use those funds to pay back a creditor. As it turns out, the practice is more common than you would think.
ADP, a human resources management company, studied payroll data from 2013 and found that 7.2% of employees have had their wages garnished. Child support accounted for 40% of those garnishments while 20% went to the government for unpaid taxes.
Defaulted student loans have risen dramatically in recent years leading to a 40% increase in garnishments since 2006. Over $665 million in wages were garnished in the last fiscal year alone (October 1, 2015 – September 30, 2016).
It takes a while to reach the point where wages are garnished, which means consumers have opportunities to avoid it. However, if your finances are in disarray and you can’t avoid wage garnishment, it might be time to look at credit counseling or debt-solution programs for help. A debt management program, for example, could help you organize your finances and get you on a budget that reduces your debt.
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% 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% 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% 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% 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% 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.
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- Kennedy, B (2014, September 25) Wage Garnishment: A Quiet But Growing Problem. Retrieved from http://www.cbsnews.com/news/wage-garnishment-a-quiet-but-growing-problem/
- Bier, J (2016, January 21) Wage Garnishment For Student Loans Is Exploding. Retrieved from http://www.fa-mag.com/news/wage-garnishment-for-student-loans-is-exploding-24655.html
- Federal Student Aid (2016, September) Quarterly PCA Collection Statistics. Retrieved from https://studentaid.ed.gov/sa/about/data-center/student/default
- Financial Management Service. (n.d.). Administrative Wage Garnishment. Retrieved July 13, 2012, from http://www.fms.treas.gov/debt/awg.html
- United States Department of Labor. (n.d.). Wages and Hours Worked: Wage Garnishment. Retrieved July 13, 2012, from http://www.dol.gov/compliance/guide/garnish.htm
- Nickel, G.M. (1998). Debtors' Rights. Clearwater, FL. Sphinx Publishing.
- United States Department of Labor. (n.d.). Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title 3 (CCPA). Retrieved July 13, 2012, from http://www.dol.gov/compliance/laws/comp-ccpa.htm
- Garnishment Laws. (n.d.). Garnishment – What You Need to Know. Retrieved July 13, 2012, from http://www.garnishmentlaws.org/