The question, “Who can garnish wages?” might as well be, “Who can’t garnish wages?”. This is only a joke of course, but the truth is that your wages may be garnished in several scenarios, including if you owe child support, student loans, back taxes, or if a court judgment has been entered against you.
Technically, a wage garnishment is a legal procedure which requires an employer to withhold some portion of a person's earnings for the payment of a debt.
This is how it works – once state and federal taxes are withdrawn from your paycheck you are left with disposable earnings, which are up for grabs if you are in debt to a creditor.
In general, the creditor may garnish a certain percentage of these disposable earnings, depending upon what you owe. This amount is withheld by your employer rather than your creditor.
Who Can Garnish Wages: 4 Categories
Child Support and Alimony Garnishment
According to the Institute for Research on Poverty, in October of 1988 a welfare reform act became law. The act had the following objectives:
“The stated purpose of the act is to revise the AFDC (Aid to Families with Dependent Children) program to emphasize work, child support, and family benefits, to amend title IV of the Social Security Act to encourage and assist needy children and parents under the new program to obtain the education, training, and employment needed to avoid long-term welfare dependence, and to make other necessary improvements to assure that the new program will be more effective in achieving its objectives.”
One of the program’s objectives was creating more stringent child support collection laws. Thus, child support orders have included an automatic wage withholding order since the law’s inception.
Wage garnishment for child support can take a greater portion than other forms, in fact, up to 50% of your disposable earnings can be garnished to pay child support if you are currently supporting a spouse or a child who isn't the subject of the order. Additionally, up to 60% of your earnings may be taken if you aren't supporting a spouse or child.
Student Loan Garnishment
In 2006, Congress passed a law that allows the U.S. Department of Education to garnish – “the amount deducted for any pay period may not exceed 15 percent of disposable pay, except that a greater percentage may be deducted with the written consent of the individual involved”. In addition, no lawsuit or court order is required for this type of garnishment.
At least 30 days before the garnishment is set to begin, you must be notified in writing of all the procedure involved with the process. Finally, according to the law you may be able to suspend garnishment if you returned to work within the past 12 months after being laid off or fired.
Garnishment of Back Taxes
Owing money to the IRS puts you in a tight spot. They will take a big chunk of change and can do so at any time. The percentage depends on how many dependents you have, along with your standard deduction amount. To start the process, the IRS sends a wage levy notice to your employer, who is required to give you a copy of the notice.
According to the IRS, “A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt. If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance, we could seize and sell property that you hold (such as your car, boat, or house), or we could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).”
State tax collectors may also be able to grab some wages as well, but in many states the law limits how much the state taxing authority can take.
Court Judgments and Wage Garnishment
The winner of a lawsuit, be it a person or entity, is a party who can garnish wages easily by simply providing a copy of the court order to local authorities. The authorities will then forward it to your employer. Although some states may set a lower percentage limit for how much of your wages can be garnished, the federally required amount that can be garnished is anywhere up to 25% of your disposable earnings.
Furthermore, Your Employer is Required to Notify you of the Following Garnishment Activities:
- Initiation of garnishment.
- The withholding part of your wages.
- The sending of garnished money to your creditor.
- Providing information on how you can protest garnishment of your wages.
Creditors must sue you and win, then get a court order requiring you to pay what you owe. They cannot just begin garnishing your wages whenever they like.
What Can You do to Avoid Wage Garnishment?
- Stop borrowing money immediately. As your debt-to-income ratio increases, the ability to enjoy ‘normal’ rights on the loan decreases. Which can lead a creditor to decide to force wage garnishment upon the debtor that is already super late on monthly payments.
- Determine which debt sources are most at risk for garnishment. Late payments, multiple attempts from the creditor to collect the debt, and multiple payments with insufficient funds in the bank are all clear red flags. Prioritizing these debts and addressing them can curtail later wage garnishment.
- Work to negotiate a deal with creditors who can garnish wages. There have been cases where debts have been settled for a fraction of the total debt.
- Set up a payment plan. One of the most crucial things you can do is to attempt to set up a payment plan as soon as you possibly can if you owe money to a creditor, who has received a judgment against you. The longer you ignore the debt or judgment, the more likely it is that a creditor will seek a garnishment order against you. But if you wait until the garnishment has already been ordered, chances are good that you won’t be able to stop it.
Can You Stop Wage Garnishment Through Bankruptcy?
If you find that a creditor is indeed garnishing your wages, you may be able to stop the garnishment and even get some of your garnished wages back by filing bankruptcy. Here's a bit more on how this works:
The Automatic Stay: When you file Chapter 7 or Chapter 13 bankruptcy, an automatic stay goes into effect that halts most collection activities by creditors (child support or alimony are a couple of exemptions). This means that wage garnishments are also stopped as long as the stay is in effect. The bankruptcy judge will only lift the automatic stay if the creditor has a valid reason for doing so.
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