Wage garnishment is a court-ordered process that mandates your employer or bank to withhold a portion of your earnings/funds in your account and remit directly to a creditor. This happens until the debt is paid or you have resolved other obligations/conditions set by the court. Wage garnishment is quite common – one study revealed that over 7 percent of 13 million employees assessed had had their wages garnished. Common reasons included consumer debt, student loans, tax penalties/levies, and child support. Even when subjected to wage garnishment, you have certain rights and limits to be observed, and there are steps to follow to reduce the effect of wage garnishment. Learn more in this article.
How Wage Garnishment Works
In most cases, the creditor must sue you for nonpayment in court to receive a court order to institute wage garnishment. However, if you have tax debt, outstanding federal student loans, or child support, the creditor can send a notice to force garnishment even without the court order. Once the notice is served, garnishment begins within 5-30 days according to the details of the notice. In some cases, you may have to pay interest on the debt and court fees. Wage garnishment happen in two ways:
- Wage garnishment – this happens to people in formal employment. The creditors legally require your employer to remit a portion of your earnings for debt repayment
- Nonwage garnishment – this happens to people in non-formal employment. The creditors legally require a bank to remit funds in your account as a bank levy for debt repayment
Caps on Wage Garnishment
There are federal limits to the amounts that a creditor can request during wage garnishment. This is done on disposable income, which is the amount left after statutory deductions. It happens as follows:
- Debt Cap on Garnishment
- Common consumer debts (credit card, medical bills, unsecured loans, etc.)
- The lower of 25% or the amount above (30 x federal minimum wage). Garnishment is not allowed if weekly earnings are below (minimum wage x 30)
- Alimony and child support
- 50% if you support another spouse/child; otherwise, 60%. A further 5% may be imposed if payments are delayed beyond 12 weeks
- Tax levies/debt Up to 15% as determined by the IRS
- Federal student loans 15%
States also impose state exemptions and limits on wage garnishment. Non-wage garnishment is less restricted and regulated, but it is less common.
What Can You Do?
Even though you have legal rights in wage garnishments, most states require that you are aware of them, and the onus to exercise them is on you. Some common rights include:
- You must be legally notified of the garnishment
- You can dispute inaccurate information or wrongful debts
- Certain incomes cannot be subjected to garnishment, e.g. veteran’s benefits, disability, or social security. However, they could still be seized from your bank account
- You can’t be fired for one garnishment, but this protection ceases for multiple garnishments
If you believe a garnishment judgement was issued erroneously, it is possible to challenge the notice. Read the notice carefully to ensure the information is accurate. Next, consider the amount to be deducted and how it affects your finances. It may be helpful to consult an attorney, tax relief professionals (if the debt is tax-related), or your local legal aid. With a professional’s help, you may challenge the judgement, negotiate a different settlement with the creditor, or accept the garnishment. You can also repay the debt in lump-sum to ease/prevent the garnishment. It is also helpful to also be honest with your employer about the circumstances behind the garnishment. This prevents your employer from drawing a worse conclusion and penalizing you for it.
Creating a budget and staying on top of your financial obligations is the best way to prevent wage garnishment. However, if you find yourself in this situation, a professional can help you to navigate it so that you are not affected too adversely. Do you need help to challenge or deal with wage garnishment? Contact us today to take advantage of our tax relief services and map your journey to better financial health.