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You Can Avoid Wage GarnishmentMonica Steinisch
Collection calls and letters may be unpleasant, but they're not the biggest guns in a bill collector's arsenal. In some cases, creditors—the people and businesses you owe money to—have the right to garnish your wages. That means your employer would be obligated to deduct money from your paychecks and give it to your creditor until the debt is paid.
If you haven't paid your debt voluntarily, likely it's because money is tight. Wage garnishment makes it even tougher to make ends meet.
Could you still afford to pay for your most vital needs, such as food and housing, on a reduced income? Without a doubt, the best way to deal with past-due debt is to be proactive about satisfying the financial obligation. Doing so not only will help salvage your credit score, it will leave your paycheck intact.
Whether or not a creditor can garnish your wages, and for how much, depends on federal and state law and the type of debt you owe.
All states allow garnishment for child and spousal support, student loans, federal nontax debts, and federal tax. Some states also allow for collection of state or local taxes and other debts you owe to state agencies. Many states now use garnishment to collect overpayment of benefits such as unemployment insurance. A few states—North Carolina, Pennsylvania, South Carolina, and Texas—don't allow garnishment for "commercial" debt, such as credit card balances.
In states that do allow garnishment for creditor debt, the process typically requires the creditor to sue the debtor and obtain a judgment against him or her. Then the creditor may request the right to garnish the debtor's wages. If granted, the debtor's employer is notified to withhold the required amount from wages until the debt is paid off or the garnishment order expires.
The federal Consumer Credit Protection Act (CCPA) restricts how much can be withheld from employee pay for certain types of debts. Other laws cover different types of wage attachments, such as federal tax levies.
For debts such as unpaid credit card balances, medical bills, and student loans, federal law allows weekly garnishment up to 25% of disposable income (what is left after deductions required by law) or the amount by which disposable income exceeds 30 times the federal minimum wage, whichever is less.
A state law that dictates an even lower garnishment limit supersedes federal law. On the other hand, federal law supersedes state law if it results in a lower garnishment amount.
State law dictates how long your wages can be garnished. In some states, the order will stand until you repay the debt plus accrued interest. In other states, it will expire after a certain time—say, 60 or 90 days—and may be renewed if the debt is not yet satisfied. Each time it is renewed, court costs are added to the debt.
Garnishment is a last resort for creditors, but may be seen as the only remaining option.
These limits apply even if more than one creditor is garnishing you. Other limits apply if you are being garnished for support, delinquent taxes, and certain other debts. For example, in the case of spousal and child support, the CCPA permits garnishment of as much as 50% to 65% of disposable earnings.
And, according to Amorette Bryant, an employer wage garnishment expert and author of "The Complete Guide to Federal and State Garnishment, 2015 Edition," levies for state taxes can take up to 100% of a debtor's paycheck.
The IRS (Internal Revenue Service), on the other hand, is kinder and gentler these days. The agency provides a guide, Publication 1494, Table for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income, for employers to use to calculate how much is exempt from levy. The amount is based on 1040 filing status and number of dependents, and pay cycle. The difference between net pay (gross earnings less deductions in effect at the time of the levy) and the exempt amount is sent to the IRS.
Garnishment limits are the same for members of the military: 50% to 65% of disposable wages for support payments, and an "involuntary allotment" of up to 25% of a servicemember's pay if a creditor has been awarded a civil judgment against him or her.
It's against the law for your employer to fire you because your wages are being garnished by a single creditor. However, depending on which state you live in, that protection can disappear with additional judgments against you.
How to avoid wage garnishment
Garnishment is a last resort for creditors—it's expensive and time-consuming to pursue a lawsuit. However, if the size of your debt is large enough and the creditor has not had success using other collection methods, garnishment may be seen as the only remaining option.
Experts say the best way to avoid garnishment is to give your creditor an easier, less expensive way to get repaid. In most cases, that means communicating with the creditor, creating a reasonable repayment plan, and following through with what you have promised.
Todd Ossenfort, CEO of Pioneer Credit Counseling in Rapid City, S.D., and online financial Q&A writer "The Credit Guy," says creditors sometimes will hold off on suing and garnishing if the debtor participates in a debt-management plan (DMP) through a credit counseling agency. Participants in a DMP make one payment to a credit counseling agency each month; the agency then distributes payments to creditors on the plan. In some cases, the agency can negotiate a reduced payment, interest, and fees on the debt.
Don't ignore notices from your creditor; don't agree to a repayment plan you can't afford.
"You'd think...[creditors would] jump at the chance to go to court and garnish," says Ossenfort. "We've actually seen a softening." His theory is that creditors think they are more likely to recoup what is owed to them if the consumer can take a holistic approach and get back on track with all creditors. However, he cautions DMP participants that there is no leeway at all once they promise to make payments.
"This is your last-ditch effort," says Ossenfort. "Miss a payment, and you're going to get garnished." So, definitely don't agree to a repayment plan you can't afford. And whatever you do, don't ignore notices from your creditors.
"Some consumers put their heads in the sand," Ossenfort says. "But the issue won't go away."
And you can't bank on your creditors being "soft." She agrees that the best way to avoid garnishment is to establish a payment plan, through a credit counseling agency or on your own, and stick to it.
If your creditor does decide to sue you, you must be notified of any pending legal action so you have time to prepare and respond. Do show up at the hearing prepared to make your case. All states have laws that exempt certain income and property from being taken by a creditor or debt collector. Find out what income you can declare exempt in your state and make sure that it is excluded from any garnishment order. If you can barely make ends meet on your full paycheck, bring documentation of your essential expenses—housing, utilities, food, transportation, and so on—to prove your hardship claim.
Your options after garnishment begins
If you haven't succeeded in avoiding wage garnishment, you have just a few options left: