Wage garnishment is a legal procedure in which a portion of a debtor's earnings are withheld by his or her employer in order to repay creditors. Garnishment is a fairly severe consequence and is usually used only when an employee is seriously behind on his or her debts. Debts that may be repaid through wage garnishment include:
- back taxes
- child support
- student loans
- personal loans
- judgments from court cases.
How Does Wage Garnishment Work?
No matter how far behind a debtor is on his or her debt, the creditor -- the person or organization to which the money is owed -- must schedule a hearing with a court. In most jurisdictions, the debtor has to be notified of the hearing's time, date, and place. The creditor must then prove that the debtor owes money and that the debtor has failed to make required payment(s).
If the court is convinced, it will issue an order requiring the debtor's employer to withhold a certain amount of his or her paycheck, along with a letter and specific instructions for the employer. The employer usually has to notify the debtor in writing that wage garnishment is about to start before sending payments directly to the creditor in question. The wage garnishment then typically continues until the debts are paid off.
Wage Garnishment Protections for Employees
There are a number of protections in place for employees whose wages are garnished. The federal government and many states have policies in place that prevent debtors from becoming impoverished while repaying their debts. Two of the most important protections are:
- Only a certain amount of work income may be garnished. Under the Consumer Credit Protection Act (CCPA), a garnishment sought in federal court may not exceed 25 percent of the debtor's disposable earnings each week. However, if the garnishment is for back payment of child support it could be as high as 60 percent of disposable income. Alternatively, the court order could garnish the amount by which the debtor's disposable earnings for the week exceed thirty times the federal minimum wage -- whichever is lower. For the purposes of this law, “disposable income” means all of your income, even if it's from multiple jobs, with the required tax deductions subtracted. Other payments that are necessary to your daily life, such as rent, food, and health insurance, aren't included in this calculation. If you have more than one debt to repay, but not enough income to cover them all at the same time, the later creditors must wait until your earlier debts have been repaid.
- Employees cannot be fired because their wages are garnished. Federal law protects you from being fired simply because your wages are being garnished for a single debt. However, if your wages are being garnished for two or more debts, your employer can fire you if it decides to do so.
How to Avoid a Wage Garnishment Order
The best way to avoid a wage garnishment order is to keep up with your debt payments. Ideally, you should pay your debts on time and in full, but this is not always possible. If you know you may have trouble paying all your bills on time, you should contact your creditors. Most student loan administrators have a variety of ways for you to avoid default. Child support, on the other hand, may be modified by court order if you can show that you can no longer afford the payments. In addition, the IRS and some state tax departments can help you schedule structured payments to repay your back taxes. Finally, some banks and other private debts may be able to work out more affordable payment arrangements.
If you‘re unable to work out an alternative arrangement and you see the notice for the wage garnishment hearing in the mail, don't ignore it! Attend the hearing with an attorney if possible. Bring along any documentation you may have about the debt, including proof of attempted payments and attempts to negotiate a different payment schedule, as well as proof of your income and expenses.
If you were unable to attend the garnishment hearing and the garnishment takes effect, you should ask your employer for a copy of the court order. You may be able to request that the court review the garnishment order. An attorney will be able to discuss all your options with you.