Wage garnishment is a legal process in which a judge orders an employer to hold back a portion of your wages to pay one or more of your creditors. There are legal limits to the percentage of a debtor’s wage that can be garnished. Bank accounts may also be garnished.
Wage garnishment for things like credit debt can only be imposed with a court order. If you owe money through an IRS levy (unpaid federal income taxes, for example) then the federal government can garnish your wages without the order.
You may be able to stop a wage garnishment from happening or to reverse a garnishment that has already been imposed.
How Wage Garnishment Works
Wage garnishment is part of a process and follows a series of steps:
- Delinquency and default. The road to wage garnishment starts with a failure to make payments on a legal debt. Missing one payment isn’t enough: in most cases, you have to miss several payments with no effort to negotiate a solution for a lender to declare a loan in default.
- Collection efforts. The creditor will try to contact you and demand payment. If there’s no response, the creditor is likely to sell the debt to a collection agency. The collection agency will pursue you more aggressively and may threaten to sue you.
- The debtor or collection files a lawsuit. Most debt collection lawsuits are filed by collection agencies, not original creditors. You will receive a summons to appear in court and a copy of the complaint. You will have the opportunity to file a response to the complaint and appear in court to defend yourself.
- The court issues a judgment. If the debtor fails to appear or if the court finds in favor of the collection agency, the debtor will be required to pay the debt. The creditor may then ask the court for a garnishment order.
- Garnishment begins. Your employer will be asked to deduct a portion of your pay and remit it to the creditor.
- Garnishment continues until resolved. Once a garnishment order is in place it will remain in effect until the debt is paid, unless you can successfully challenge it.
Garnishment may be imposed without a court judgment for these debts:
- Child Support or Alimony
- Federal Income Tax Arrears
- Federal Student Loans.
A wage garnishment order only applies to your wages. A court can also impose non-wage garnishment, sometimes called a bank levy, which can seize assets in your bank account.
You have some rights in the garnishment process:
- You must receive legal notification of the garnishment.
- You can file a dispute if the garnishment is based on inaccurate information.
- Your employer cannot fire you for a single garnishment, but this protection may be revoked if you incur multiple garnishments.
You should know these rights and you may have to take the initiative and assert them. They may not be automatically given to you.
What Can and Can’t be Garnished?
Federal law places limits on how much of your income can be seized through a garnishment process. When the rules mention “income”, they are referring to disposable income, which is the part of your income left after taxes, Social Security, and other deductions.
Federal law imposes garnishment limits for different types of debt:
- For consumer debts, such as credit card debt, medical debt or personal loans wages cannot be garnished if you earn less than $942.50/month, no garnishment can be imposed on your wages. If you earn from $942.50 to $1256.66, the amount above $942.50 can be garnished. If you earn more than $1256.66, up to 25% of your take-home pay can be garnished.
- If you owe child support or alimony, up to 50% of your wage can be garnished if you are supporting another spouse or child. Up to 60% of your wage can be garnished if you are not supporting another spouse or child. No court order is required.
- If your debt is from a federal student loan or other non-tax debt to a federal agency, up to 15% of your wage may be garnished without a court order.
- If you have federal tax debt, up to 15% of your disposable income may be garnished. The IRS will calculate the amount based on your deductions and dependents. No court order is required.
Some payments you may be receiving, like Social Security, veteran’s benefits, retirement funds, disability benefits, or alimony or child support that you are receiving, are not considered income and are not subject to wage garnishment. Once they are in your bank account, they may be subject to a bank levy.
Some state laws provide additional exemptions and protections, but you may have to request them. If a state law imposes different requirements than federal law, the law imposing the lower garnishment will be followed. Four states – Texas, South Carolina, North Carolina, and Pennsylvania – do not allow wage garnishment for creditor debts.
What To Do if You Get a Wage Garnishment Notice
You must be notified before wage garnishment can begin. Don’t panic. Start by reading the notice and any other documents and verifying that all the information is accurate.
Consider these options:
- Negotiate with your creditors. Collection agencies buy debt for pennies on the dollar and may be willing to settle for less than the total amount, especially if you can offer them a lump-sum payment.
- Protest the garnishment. If you see errors or inaccuracies in any of the paperwork or procedures that were followed in the garnishment process, you can file a process. You will have to act quickly, and you may need legal assistance.
- Look into credit counseling programs. Many nonprofit agencies offer credit counseling assistance that may involve negotiating with creditors on your behalf.
- Accept the garnishment. If the debt is legitimate and the legal process was correct you may simply need to accept the judgment and live on less money until the debt is paid off.
- Consider bankruptcy. If your debt problems are completely out of control and you cannot see any way to pay your debts, bankruptcy may be a viable option for you.
If you find your wages garnished without warning or you get a garnishment notice without ever having been notified of a lawsuit, you may be a victim of “sewer service”, a practice that occurs when a collection agency claims that you were notified of legal action when you were not. This practice is illegal and if it occurs you should seek legal advice.
Will Wage Garnishment Affect Your Credit?
By the time a consumer debt reaches the point of legal action, it has become delinquent, gone into default, and in most cases been sold to a collection agency. All of these events will have a serious impact on your credit.
The garnishment itself is a civil judgment. Civil judgments are not currently reflected in your credit report, though this may change in the future. A creditor may add a note to an account entry indicating that the account is being paid by wage garnishment.
A civil judgment can still affect your ability to get credit. Many lenders will do a public record search as well as a credit check, especially if you’re applying for a mortgage or other major loan. Your civil judgment will appear on a public records search.
If your wage garnishment leaves you unable to pay other debts or bills your credit could be damaged by late or missed payments.
Wage garnishment can take a significant chunk out of your paycheck and could leave you unable to meet other obligations. It can also place you in a difficult position with your employer, who will be aware of your debt problems.
Wage garnishment can be avoided. If you address debt problems quickly and resolve them before they get out of control you will not have to face wage garnishment. Even serious debt problems can be negotiated, which can prevent wage garnishment. If a creditor or a collection agency files a suit against you, be sure to respond and to attend the hearing.
If you do receive a garnishment order check it carefully. You may be able to fight it if it’s not accurate, and if your income is low you may be exempt from garnishment.