What is Garnishment and How Does It Work?
Owing money is difficult enough, but it can become a greater burden when you can’t pay it back. Ignoring calls and letters often leads to worse financial trouble. Garnishment occurs when a portion of your earnings or bank balance is taken to repay a debt, usually under court orders.
Having your wages garnished can be uncomfortable, especially when employers are involved. However, addressing the issue early gives you more control over the outcome.
Why Does Garnishment Happen?
Garnishment is generally the last resort for recovering a debt. It can cause serious financial problems, so it’s important to stay proactive about your debts.
Common debts that lead to garnishment include credit cards, medical bills, student loans, child support, and taxes. For consumer debts like credit cards, a court order is needed, but for taxes and student loans, it isn’t.
Wage Garnishment
Wage garnishment occurs when your employer is legally required to send a portion of your paycheck to the creditor. The money is taken before it reaches you.
Your employer must inform you of the amount withheld. It’s also illegal for them to fire or retaliate against you because of wage garnishment.
Non-Wage Garnishment
Non-wage garnishment, also called a bank levy, allows creditors to take money directly from your bank account. It’s less common and more complicated than wage garnishment.
This process can lead to your account being frozen for a period of time. Thanks to a 2011 rule, electronically deposited exempt funds are automatically tagged to prevent them from being garnished.
What Can Be Garnished?
Thanks to Title 3 of the Consumer Credit Protection Act, only your disposable income can be garnished. This is based on your expenses, obligations, and earnings.
Certain deductions like taxes, Social Security, and veterans’ payments are protected from garnishment. The maximum garnishment amount is generally 25%, but for child support, it can go up to 65%.
Avoiding Garnishment
Garnishment is usually used in extreme cases where the debtor refuses to communicate or repay. Before garnishment happens, creditors must send notices.
By responding to these notices, you can often negotiate a new payment plan. If not, you can still plead your case in court to reach less severe terms.
Tax Garnishment
For unpaid income taxes, the IRS can garnish up to 15% of your disposable income without a court order. They’ll send a letter explaining the situation and possible alternatives.
Some states can also garnish wages for state and local taxes, so it’s important to know your local laws regarding garnishment.
Child Support Garnishment
For child support or alimony, up to 50% of your disposable income may be garnished. If you don’t support anyone else, it could be as much as 60%.
If you fall behind on payments by more than 12 weeks, an additional 5% can be added, making the total garnishment as high as 65%.
Federal Student Loans
Federal student loans can lead to garnishment of up to 15% of your disposable income. These loans do not require a court order.
Before garnishment, the U.S. Department of Education will send a letter with a 30-day notice. You can respond or dispute it to avoid garnishment.
Court Judgments
Court judgments cover consumer debt, medical bills, and lawsuits. These require a court order for garnishment to take place.
Creditors must sue you and get a court order before garnishing your wages. If you don’t show up in court, the judge may set terms for garnishment.
Conclusion
Garnishment is a serious issue that should be addressed as soon as possible. The more you avoid it, the worse it can get, and the less control you’ll have.
Though it’s difficult, wage garnishment comes with certain protections, and laws exist in some states to safeguard you. To avoid it, communicate with creditors and face the consequences of debt proactively.
