Angela Barrett said the wage garnishment decree handed down by a judge came out of nowhere.
“I was at home when someone representing the court stopped by to present me with the wage garnishment notice. It was devastating.”
Creditors have the legal right to collect unpaid debts. What starts as phone calls and letters can turn into debt collection of last resort: Wage garnishment. By law, your employer is required to abide by wage garnishment requests by withholding the percentage of your pay mandated by the court that issued the garnishment decree. You can lose up to 60% of your wages until you repay the debt.
Wage garnishments present serious ramifications for workers who live from paycheck to paycheck. Therefore, it is imperative that you understand the fundamentals of wage garnishment law.
What is the Legal Process?
Presenting a debtor with a wage garnishment decree typically requires the creditor to file a request in court. Federal law defines the process for both debtors and creditors to follow.
The first step requires the creditor to send you a letter that includes the final demand for payment. Within the letter, the creditor must use clear language that indicates that unless you pay off the debt, the creditor will file a lawsuit. If you refuse to pay off the debt or negotiate a payment plan, expect the creditor to file a Request for Garnishment on Wages. The court must make at least one attempt to serve you the legal papers that confirm the Request for Garnishment on Wages. If you fail to dispute the garnishment request, the court approves the request and then it becomes the Writ of Garnishment. Your employer also receives the Writ and Garnishment, which forces the employer to start withholding the specified amount from your paycheck.
Is There a Limit on the Amount Garnished?
The Consumer Credit Protection Act (CCPA) includes Title II of the Federal Wage Garnishment Law, which places a limit on the amount a court can garnish wages. Courts can garnish wages up to 25% of debtor disposal income. The legal definition of disposal income is income after taxes. You cannot deduct essential living expenses such as food, insurance, and mortgage payments. The court ordered garnishment percentage remains in place no matter how many disposable income garnishments you have going on at the same time. This means two creditors must share the 25% disposable income garnishment percentage. If a Request for Garnishment on Wages is for child support, you could lose 60% of your wages.
Types of Wage Garnishments
We have touched on creditor and child support garnishments. Student loan garnishments follow the 25% percentage rule applied to consumer debt, although recent legislation has given student loan debtors more time to pay back the loans and in some cases, the federal government forgives outstanding balances that do not exceed a certain amount. Federal, state, and municipal tax levies depend on individual laws. If you receive a tax levy and can prove the levy causes financial hardship, the governing entity that issued the tax levy might release you from paying the back taxes or require you to pay back a lower amount of taxes. The IRS and state tax collection agencies will release you from a tax levy if you have to pay child support.
Is Bankruptcy an Option?
Filing for Chapter 7 or Chapter 13 bankruptcy ends most wage garnishments. The bankruptcy court issues an “automatic stay” to prevent creditors from trying to collect debts. Automatic means you do not have to obtain a court order. By filing a bankruptcy petition, you have presented the paperwork you need to stop creditors from attempting to garnish your wages. Filing for bankruptcy temporarily halts tax levies and federal student loan wage garnishments, but eventually, you will have to pay back both types of debt.
One critical thing to remember when it comes to a wage garnishment: Your employer cannot terminate you because you and your employer received one Writ of Garnishment. However, the CCPA does not protect debtors who receive more than one Writ of Garnishment. Some states permit employers to ask for reimbursements from employees to cover the administrative costs involved in managing more than one wage garnishment.