Wage Garnishment – What Is It and How Does It Work?
Wage garnishment is a powerful tool creditor can use when a consumer is delinquent or in default on their debt. For consumers, though, the prospect of wage garnishment is frightening. And it can be confusing to decipher what a creditor can do and what rights you have if any.
In this article, we’ll remove some of that confusion by digging into the details of wage garnishment. We’ll cover how it works and what you can do to prevent it.
What is wage garnishment?
Wage garnishment is the legal procedure through which a portion of an individual’s earnings is withheld by their employer to satisfy a past-due debt with a creditor.
It can be used by creditors to recover a variety of debts including credit cards, personal loans, medical debt, taxes, and child support. About 7% of U.S. employees have their wages garnished, according to a 2017 ADP study.
There are two forms of garnishment: wage and non-wage.
Wage garnishment refers to the withholding of any income that is earned as compensation for services including:
- Any other compensation (including payments from a pension, retirement program, or an employment-based disability program)
Non-wage garnishment refers to the seizure of bank accounts or other personal property.
Fortunately for consumers, wage garnishment doesn’t occur the minute you miss a payment. There is a specific process with multiple steps that must take place before your paycheck is affected.
“You have to be pretty delinquent,” said Leslie Tayne, a New York-based debt resolution attorney. Usually, a creditor has already contacted you and made several attempts to bring the debt current.
If and when a creditor will initiate the process of wage garnishment can vary. “It does depend on the creditor,” Tayne said. “Some are much more aggressive than others.”
How does wage garnishment work?
For wage garnishment to occur, a creditor would need first to sue a consumer for the nonpayment of their debt, win the lawsuit and obtain a judgment against them. Only then can a creditor begin the process of wage garnishment.
An exception to that is in the case of past-due federal debt such as student loans and taxes, any non-tax debt owed to the government, child support or alimony. In those instances, a judgment against you is NOT required, and the state or federal government can garnish your wages without a court order.
The exact procedure leading to wage garnishment varies by state and also by the type of debt, but here is a look at the general steps that take place.
|Wage Garnishment Timeline|
|Breaking down the Steps|
|Delinquency occurs||A creditor first goes through its typical channels of notifying you of the delinquency and providing an opportunity to bring the account current.|
|Creditor pursues legal action||If a creditor is unsuccessful in its attempts to collect the debt, it can pursue legal action and notify you of its intent to sue.|
|Court case occurs||The lawsuit will go to court if you fail to respond to the creditor’s notifications, or if you allow the case to proceed.|
|A judgment is made against you||If your creditor wins and a judgment is made against you, you will be notified.|
|Creditor begins the process of wage garnishment||With a judgment against you, a creditor can pursue wage garnishment.
|Court orders your employer to withhold a portion of your income||The court will order your employer to set aside a portion of your income to go to your creditor.|
How much of your wages can be garnished?
The total amount garnished will include not only the amount of debt owed but also any interest and fees that the court decides must be covered. In most cases, your wages are garnished until the total debt is resolved, with the exact length of time depending on, of course, the balance owed, interest and fees. In Tayne’s experience, she has seen wage garnishment last as long as 10 to 15 years.
There are protections in place to make sure consumers whose wages are garnished still have enough to live on. A debtor must earn a minimum amount — which is based on the federal minimum wage — for their income to be garnished. And there are limitations as to how much can be withheld from each paycheck, depending on the type of debt.
The amount withheld is based on a percentage of your “disposable earnings,” which is defined as your income less any required deductions such as federal and state taxes, Social Security, Medicare, and State Unemployment Insurance tax. Any amounts deducted from your paycheck that are not considered to be required, such as health insurance or voluntary retirement contributions, will be included in your disposable earnings.
Certain types of income such as Social Security, VA, and others, are exempt from wage garnishment, although, in the case of collecting government debts and child or spousal support, some of those income sources may be accessible.
Here is a breakdown of the maximum amount that can be withheld for wage garnishment.
|Maximum Amount That Can Be Withheld|
|Debt type||How much is taken out of your paycheck|
|Credit cards||Up to 25% or up to the amount by which your disposable income exceeds 30 times the federal minimum wage (currently $7.25) — whichever is less.
If your weekly disposable income is more than $217.50 ($7.25 x 30) but less than $290 ($7.25 × 40), the amount above $217.50 can be garnished.
If your disposable income is $290 or more, a maximum of 25% can be garnished.
If your disposable income is $217.50 or less, there is no garnishment.
|Personal loans (including private student loans)||Up to 25% or up to the amount by which your disposable income exceeds 30 times the federal minimum wage — whichever is less.|
|Medical debt||Up to 25% or up to the amount by which your disposable income exceeds 30 times the federal minimum wage — whichever is less.|
|Federal student loans||Up to 15%|
|Child Support and alimony||Up to 60% (50% if the employee is supporting another child or spouse.)
If payments are more than 12 weeks behind, an additional 5% may be garnished.
|Non-tax debts owed to the federal government||Up to 15%|
|Debts owed after a bankruptcy court order||Varies (Not subject to these limitations)|
|State or federal taxes||Varies (Not subject to these limitations)|
How to stop wage garnishment
Since wage garnishment doesn’t happen overnight, there are opportunities before and during the process to address the debt and attempt to prevent garnishment.
1. Contact your creditors
One of the best ways to end wage garnishment is to communicate with your creditors. Remember: Their only goal is to get paid, so in most cases, they will be willing to work with you and come to an agreement to resolve the debt.
The key is to initiate the conversation as early as possible, as once they’ve taken legal action, they may be less likely to work with you.
According to Tayne, even if a judgment is made against you, there may still be an opportunity to resolve the debt before your employer is notified and ordered to garnish your wages. This process varies by state and even by county, so find out what the law is in your area.
Again, keep in mind that you need to take action before the garnishment begins. “Once you allow the wage garnishment to go through, you lose some of your legal rights; you lose a lot of opportunities,” Tayne cautioned.
2. Consider meeting with a credit counselor
A credit counselor can help you take a look at your overall picture and come up with a plan to work with your creditors.
This can be an important step that shows you are willing to address the debt. In some cases, your credit counselor may recommend you enter a debt management plan.
3. Contact an attorney
An attorney who is well-versed in consumer law can help you assess your exact situation and determine the best course of action depending on what stage you are in the wage garnishment process.
“If you receive one of those notices my recommendation is to reach out to somebody to try and get yourself some help. You need to find someone who really understands the law in this particular area,” Tayne advised.
Even if the wage garnishment process has begun, you have rights. “It’s so important to be aware that there are still rights when you get a wage garnishment notification,” Tayne said. Depending on your situation, you might be able to request a hearing to argue that your wages shouldn’t be garnished.
But again, the most opportune time is before your income is withheld.
Get back on track with your debt
If you are faced with the prospect of wage garnishment, or even if it has already gone through, make avoiding a repeat situation your priority.
Here are some steps to make sure you manage your current level of debt and avoid getting in over your head.
- Start budgeting. Creating a budget is a great way to ensure that your money goes toward priority items such as your housing and your bills. Knowing what is within your budget to put toward your debt is the key to making your payments on time and consistently.
- Reduce unnecessary spending. Comb through your spending to see if there are areas in which you can cut back or eliminate.
- Avoid taking on new debts. Until you get a handle of maintaining your current obligations, don’t add any new debts.
- Bring in additional income. Increase the amount you’re able to put toward your debt by taking on a side hustle or part-time job.