What is Wage Garnishment?
Garnishing wages is the act of withholding a specific amount of money from someone’s paycheck to pay back a debt that they owe and have failed to repay. If you are experiencing wage garnishment, it means that a debt collector of some sort will be taking money from your wages until your debt is repaid.
The amount of money that could be taken due to wage garnishment will vary depending on the type of debt you owe. Many types of debts can only utilize wage garnishment as a tool if allowed by a court order. However, some types of debts such as tax debt or student loans do not need a judge to grant the request to garnish your wages.
If you are notified about upcoming wage garnishment action, there are a few actions you can take to respond. It’s important to be educated on the topic, know your rights, and take the proper next steps.
How does wage garnishment work?
Once a creditor gets a court order to garnish your wages, or in cases where a court order is not needed, the creditor will send a notice to your employer or your bank. Often, your employer will simply remove the garnishment amount during the payroll process, so once your wages hit your bank account, they will reflect a deduction due to wage garnishment.
Different types will have different requirements and stipulations around the percentage of your wages they can take, and the timing will vary depending on how much debt is owed. Your state laws will also impact the wage garnishment process; some states may offer tighter protections around limits or feature exemptions in some instances. If you are the sole provider for a child dependent, for instance, some states might not allow creditors to garnish your wages in the same way they would allow creditors to garnish the wages of someone with no dependents.
Who can have their wages garnished?
ADP, which is a large payroll processor in the United States, found through a study that 7.2% of 13 million employees had experienced wage garnishment in 2013. Anyone who owes a debt and repeatedly fails to pay back that debt could have their wages garnished. It’s important to remember that wage garnishment is often a last resort for most creditors; you likely will have been contacted many times and given the chance to repay your debt prior to wage garnishment.
As mentioned, some states will offer protections in certain situations, but it is up to the debtor – you – to find out about any exemptions and ask for them. There are a few types of income, such as Social Security and veterans’ benefits that are exempt from wage garnishment. However, even these exempt income types could be subject to seizure once they hit your bank account.
Types of Wage Garnishment
Just like there are many different types of debt, there are many daggered types of wage garnishment. Creditors seeking wage garnishment for student loans will not face the same requirements or restrictions as creditors seeking wage garnishments for consumer debts.
Wage garnishment can happen at two points: before your paycheck is even written or once funds hit your account. Traditional wage garnishment happens when creditors coordinate with an employer to withhold an employee’s wages and pay the creditor prior to completing pay. Nonwage garnishment is when the creditors tap into your bank account and seize a certain amount of money.
If you owe debt such as credit card debt, medical bills, personal loan debt, or something similar, creditors trying to access your wages will need a court order. For debts such as child support, alimony, student loans, or taxes, wage garnishment does not require a court order.
Wage Garnishment for Federal Student Loans
Student loan debt impacts millions of Americans. Its compounding interest often leaves borrowers owing way more than they took out, making it difficult to keep up with payments. If your federal student loans are in default because you failed to make your monthly payments, the U.S. Department of Education, or whatever agency you borrowed from, can pursue wage garnishment without a court order.
Student loan wage garnishment is capped at 15% of your pay or 30 times the current federal minimum wage per week. These creditors are also required to send a notice 30 days before the wage garnishment is set to start. This notice will tell you how much you owe, where to find the records related to your loan, how to start on a voluntary repayment schedule, and how to request a wage garnishment hearing.
Wage Garnishment for Child Support and Alimony
In a divorce, if one person is set to make more money than their spouse, leaving them with a lower income, in many states, that person will be required to make alimony payments for a certain amount of time. If a couple has a child and then gets divorced, one parent might have to make monthly child support payments. In many cases, alimony payments and child support payments go hand-in-hand.
If you owe child support, that amount will be withheld from your paycheck and sent to the other parent of your child. If part of the arrangement requires you to pay for health insurance for your child, that amount will be withheld from your wages, too.
Federal law says that if you have a child to support who is not part of the court order, then up to 50% of your disposable income can be garnished to pay child support. If you do not have any children outside the one that you are paying child support for, then up to 60% of your disposable income can be withheld to do so. If you are over 12 weeks late to make payments, an additional 5% of your wages can be garnished.
When the court order bundles alimony and child support into one family support payment, your wages can be garnished for both. However, in most cases, court orders that are exclusively for alimony payments will not be subject to automatic wage garnishment.
Wage Garnishment for Taxes Owed
If you owe money to the IRS and you fail to pay it back, they will not waste any time before garnishing your wages. The amount the IRS can take will depend on your standard deduction amount and how many dependents you have, but as a rule of thumb, the IRS can usually take up to 15% and will not need a court order to do so.
Similar to student loans, creditors seeking your wages to pay back tax debt will send a notice to your employer that details the situation and includes an exemption claim form for you to fill out. Once your employer is notified, they are required to inform you about the wage garnishment and provide a copy of the notice they received from the IRS.
Though the IRS only oversees federal tax wage garnishment, some state and local tax agencies may also be able to pursue wage garnishment. However, the garnishment limits faced in those situations may be a bit lower. Contact the labor department in your state for more information on the regulations surrounding wage garnishment for state taxes owed.
Court Judgments and Wage Garnishment
Other debt types such as unpaid credit card bills, medical bills, or personal loans will require a court order before a creditor pursue wage garnishment. This process takes a bit longer because the creditor must first sue you in court. Only if you lose the lawsuit can the court grant a money judgment against you and allow your creditor to garnish your wages.
If your creditor gets a court order to garnish your wages, they will send a copy to your local sheriff as well as your employer. Your employer will then notify you prior to withholding your wages.
Federal law only allows up to 25% of your disposable earnings, or the amount by which your income exceeds 30 times the federal minimum wage, to be withheld each week. Your disposable earnings are what is left after mandatory deductions such as social security. There are a few states that offer more robust protections to those in debt, limiting the amount that can be garnished by even more.
Retaliation for Wage Garnishment
Under federal law, you cannot be fired from your job when your wages are garnished for any of the above circumstances. However, if you have multiple creditors trying to garnish your wages at the same time, you lost many of your protections. You also lose most of your employment protections if you have had your wages garnished multiple times. If you do go through wage garnishment, do your best to avoid the situation in the future because you will not have as many resources or protections the next time around.
Understanding Your Rights
In most situations, both sides will have rights and protections, and garnishment is no different. Though there are rights for the debtor in situations impacting an employee’s earnings, it is up to you to know about these rights and exercise them in most states.
First, you must be legally notified of upcoming garnishments prior to their start date. Depending on your situation, you may receive a legal notice from your creditor or your employer, sometimes both.
Once you have been notified, it is your right to dispute the notification if you believe the debt to be incorrect. Whether there is an error in the amount, or you believe you don’t owe the debt at all, you can open a dispute to try and avoid wage garnishment. Some income types like Social Security are ineligible for wage garnishment, though they lose their protections once they are in your bank account.
Lastly, as mentioned above, you cannot be fired for having your wages garnished as long as it only happens once. If multiple creditors come after your wages or it seems to be a recurring trend, your employer may have grounds to terminate your position.
What should I do if I receive notice of wage garnishment?
If you get notified that your wages are going to be garnished, there are a few critical things to keep in mind as you navigate the process in front of you. Most importantly, stay calm and gather all the resources that you can. The legal notice should give you a bit of information in terms of where and how to object or dispute the claim, but you’ll need to do a bit of research yourself to be fully equipped.
If you determine that the debt is valid and owed by you, assess what it will mean for your financial situation. Having 15% or more of your wages garnished each pay period can drastically change what your weekly and monthly income will look like, so you might have to make some lifestyle or financial changes to accommodate the situation.
If you’re unfamiliar with wage garnishments, it never hurts to consult a legal or financial professional to help you navigate the process. Even speaking with someone well-versed on the topic can make it much less difficult to understand and work through. After you’ve done your research, it’s time to take action, you can:
Coordinate a Deal
One of the best first steps to take is to contact the creditor issuing the wage garnishment. Sometimes, a simple conversation can make a big difference in the situation. Ask them if you can work out a payment plan that you can afford instead of having your wages garnished. You might be surprised at their willingness to help.
Take it to Court
You can challenge the garnishment in court if you believe you have the foundation to do so. If you believe the ruling was made in error, if it will cause undue harm, or if it is not being properly conducted, you might have grounds to object in court. If you do decide to take legal action, you’ll need to do it quickly. You may only have five business days to object to the court order.
Accept the Situation
If the debt belongs to you and the garnishment is valid, paying back the debt as quickly as possible is your best option. Your creditor will let you know how much you owe in total, giving you visibility as to how long you will experience your wages being cut. It might be worth it to take out a personal loan or borrow money from a family member to pay back your debt all at once if possible. Be wary that more debt could exacerbate your financial situation even more, so only take out more loans if you’re confident you can pay them back on time.
Though it’s never fun to deal with wage garnishment, being upfront with your employer is the best course of action. Talk to the HR department at your job and let them know your situation so you can reassure them it won’t be an ongoing issue.
Just like there are different types of wage garnishment, each one requires a different objection process. If you decide to object, be sure to do so quickly because you’ll have a very limited time to complete the process.
For wage garnishment related to child support, you’ll have to request a court hearing to challenge or modify what you owe. To modify the amount you pay, the hearings will require you to have had a change in your situation that impacted your income, such as a job loss or job change.
Consumer debts, like credit card debt, will highlight the instructions on how to object to the garnishment in the legal notice. Since this is a bit of a “catch-all” category, there is no cut-and-dry way to navigate it.
If your wages are going to be garnished due to student loan debt, you can request a court hearing with your loan servicer or provider. This request must be in writing and it has to be postmarked 30 days or less from when the notice of garnishment was sent to you.
Lastly, for tax-related debts, you’ll need to request a “Collection Due Process Hearing.” This hearing will offer you the chance to dispute the notice or review any alternatives available to you.
Negative Impacts of Wage Garnishment
Wage garnishment in and of itself can be extremely difficult to navigate. Having money taken from your paycheck each pay period can completely alter your financial situation and put you at risk of defaulting on other loans or paying your bills on time. Unfortunately, it doesn’t always stop there.
Wage garnishment probably will not show up on your credit score, but since wage garnishment is a result of overdue debt, that debt will already be impacting your credit score. Creditors can also put a notice on your credit report stating that wage garnishment is helping them obtain regular payments from you.
In a worst-case scenario, wage garnishment could lead to bankruptcy. If you are unable to pay back your debt or it adds more stress to an already difficult financial situation, you could find yourself filing for bankruptcy. The after-effects of bankruptcy are difficult to navigate and the information stays on your credit record for 7-10 years.
Wage Garnishment is Manageable
For most people, wage garnishment is difficult but manageable. Once you are done paying back your debt, your creditor will notify your employer and stop garnishing your wages, making it much easier to manage your finances each pay period. Don’t let wage garnishment happen over and over – once is enough. Only take out debt that you can afford to pay back and work with your creditors to set up manageable payment plans. With a bit of creativity and perseverance, you can successfully come out on the other side of wage garnishment. Interested in getting a Fresh Start Program by the IRS? Sort out your options here at Ideal Tax!
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