What Is Garnishment and How Does It Work?
Owing money is difficult enough, but it can become an even greater financial burden when you aren’t able to pay that money back. It can be tempting to ignore phone calls and letters in the hopes that the problem will go away on its own.
This is exactly what you shouldn’t do, and it is what usually leads to a much more severe financial burden: Garnishment.
Garnishment occurs when a portion of your earnings or bank account balance are removed automatically to pay back a debt, generally under court orders.
Having your wages garnished is an uncomfortable and unpleasant topic to think about. It can be especially uncomfortable when your employers are involved. However, if you don’t address the problem early on, you will end up having even less control over the outcome.
Why Does Garnishment Happen?
Garnishment is generally the last resort an entity will take to claim an owed debt. It can cause serious financial issues for the party being garnished, so always be sure that you’re proactive about your debts.
The kinds of debt that are commonly handled through garnishment include credit cards, medical bills, federal student loans, child support, and unpaid income taxes. For consumer debts such as credit cards, garnishment can only happen with a court-ordered mandate. Child support, unpaid income taxes, and federal student loans don’t require court orders.
A creditor will seek garnishment when they believe there is no other method for obtaining the debt they are owed. It can result in the debtor having less disposable income, a significant drop in credit score, locked funds, and more.
There are two kinds of garnishment that can occur: Wage garnishment, and Non-wage garnishment.
Wage garnishment is when your employer is legally required to send a percentage/amount of each of your paychecks to the party you are financially obligated to. This means that the money will be removed from your possession before you ever see it. This is the most common form of garnishment.
A copy of the court orders is given to your employer specifying the terms of what you owe and how it is to be paid. The employer will then pay the party that you owe the money, straight from your paycheck.
More often than not, if you’re facing wage garnishment, your employer is required to inform you of the withheld amount. It is also illegal for an employer to fire, discipline, or retaliate against an employee because their wages are being garnished. So even though it can be an embarrassing circumstance, no action is allowed to be taken against you for it.
Non-wage garnishment is when the money is taken directly out of your bank account. It’s also known as a bank levy, and it allows creditors to be paid from your personal funds.
This method occurs less often and is typically the more complicated of the two. This is because it leaves the debtor with little control over what is being taken. It can result in your bank account being locked from your control for a lengthy period of time.
Part of what makes it a more complicated method is that the parties seizing your money have to go through your account and figure out which funds are exempt from garnishment and which are not.
To simplify the process a bit, electronically deposited funds that are exempt from garnishment are now automatically tagged as such thanks to a rule passed in 2011. Prior to this, all of a debtor’s funds were frozen until the exempt money was separated from the non-exempt money, which is what led to people having their funds out of their control for months at a time.
Funds That Are Exempt From Garnishment
While being faced with garnishment can be quite daunting, there is a limit to what is allowed to be garnished from your wages. Thanks to Title III of the Consumer Credit Protection Act, you have some protections in place to ease the toll of garnishment.
Only your disposable income can be garnished, which is determined based on your personal expenses, obligations, and earnings. While you aren’t guaranteed to be left a comfortable amount of income, you should always be left with enough to cover your necessities.
Deductions that are legally required to be paid by the debtor (like federal taxes, Social Security payments, unemployment insurance, veteran’s payments, etc.) are also protected from garnishment. This doesn’t cover deductions that aren’t mandated by law, though.
There is also a cap on how much can be garnished from an individual’s earnings during a single pay period. The overall maximum is 25%, except in cases of child support, which can go as high as 65%. Depending on why your wages are being garnished, the maximum amount that can be attached could be less than 25%.
For the most part, courts will rely on garnishment only in extreme cases. An extreme case would mean that the debtor is actively ignoring what they owe and is refusing or neglecting to communicate with the creditor. Before any kind of garnishing can occur, the party looking to garnish a debtor’s wages is required to send some form of notice.
If you respond to these notices and communicate with your creditors, often times a solution can be worked out. It is much more desirable to come to a new payment plan than to have your wages garnished. If your creditor is unwilling to negotiate with you, you can also be heard in court before the garnishing is set into effect. This allows you to plead your case before a judge and hopefully reach terms that are less severe.
A serious consequence of ignoring garnishment early on is property attachment. This means that the party you are indebted to will legally own a property of yours, such as a house or car, until you pay them back in full. If you sell this property, then the money made from it goes to the creditor rather than you.
If you have been notified that you are at risk of having your wages garnished based on inaccurate information, don’t hesitate to dispute it. Since not all forms of garnishment require you to be taken to court before garnishing your wages, an inaccurate filing could still result in your wages being garnished if undisputed.
Garnishment is a tough financial situation that can’t be reversed, so take any and all measures you can up front to prevent it from happening, if possible.
Garnishment For Income Taxes
Depending on the number of dependents you have and the deductions available to you, the IRS can garnish up to 15% of your disposable income. They don’t have to have a court order to take this amount and will send you a letter beforehand explaining the situation to you.
This letter will cover all of the details surrounding your debt, including alternatives to wage garnishment. If you would like to avoid garnishment, make sure you contact them as soon as you can and try to reach an agreement.
Some states also garnish wages for owed state and local taxes. These laws are more specific to each location, so make sure you are aware of your state’s laws regarding garnishment.
Garnishment For Child Support and Alimony
If you are supporting a spouse or another child, up to 50% of your disposable income may be taken through garnishment. If you are not supporting anyone else, then it could be as much as 60%. If you fall behind on payments by more than 12 weeks, then an additional 5% can be added to the amount being garnished. This means that a maximum of 65% of your wages could be garnished for child support payments.
For all other kinds of garnishment, 25% is the maximum amount of disposable income that is allowed to be taken from a debtor. However, cases of child support are an exception, which is why the percentage is so much higher than the other reasons.
Since the Family Support Act of 1988, all new or modified child support orders are required to include wage withholding terms. Once the court orders on owed child support are finalized, the court or the child’s other parent will send the copies of the order to your employer.
If you are required to pay for or contribute to the child’s health insurance, this may also be garnished from your wages.
Garnishment For Federal Student Loans
Federal student loans can lead to a garnishment of up to 15% of your disposable income. These loans are not required to use a court order, meaning that an unsettled debt could lead to your wages being garnished without you ever stepping into a courtroom.
Before garnishing your wages, the U.S. Department of Education (or the institution that you owe money to) will send you a letter with a 30-day notice informing you of the consequences of not repaying the debt. You can respond to the letter by writing a response and having your case heard in court.
If you ignore the letter then the institution can proceed to garnish your wages without following up with you. The best way to avoid this is to make sure that you communicate as proactively as possible with the guarantor of your debt.
Garnishment For Court Judgments
Court judgments are where all other kinds of wage garnishment fall. These include things like consumer debt, medical bills, lawsuits, etc., and require a court order to take place.
Before a creditor can garnish your wages, they are required to sue you. You will be summoned to a court hearing, and if the judge sides with the creditor, then you will be ordered to pay the owed debt. If you do not show up to court, or you aren’t able to pay the amount owed, then terms will be set for garnishment and the court orders will be finalized.
The maximum amount that can be garnished for a court judgment is 25% of your disposable income, and it will vary depending on what terms are reached during court.
Each state also has slightly differing laws on the subject; some states don’t even allow garnishment of wages for consumer debts. Make sure that you research the local laws and always communicate with your creditor. As with most of these cases, garnishment can usually be avoided by communicating your situation with the entities you owe money to.
Having your wages garnished is a serious issue, and you should always do your best to stay on top of it. The more you try to avoid addressing the issue, the worse it will get, and the less control over the situation you will have.
While it is definitely a difficult circumstance to wind up in, keep in mind that you are not completely thrown to the wolves. Thanks to the advocates of various groups, there are pretty strong protections included in wage garnishment that keep it from wreaking total havoc on your life.
There are also laws in some states that are set up to help protect you as well. One such example is New York. In New York, if you have had a deposit from an exempted fund within the last 45 days (such as a disability check) then you are entitled to the first $2,500 in your account. If you haven’t had a deposit from an exempted fund, then you are still guaranteed $1,716 in your account.
The best way to prevent garnishment, aside from paying your debts on time, is to actively interact with your creditors. Doing so will show them that you are serious about paying back your debts, and it will make the whole process smoother.
Garnishment exists as a way to deal with people who are unwilling to face the consequences of debt, so set yourself apart and be willing to face those consequences. You’ll benefit from it in the end.
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