Wage garnishment is a powerful tool creditors, including credit card companies, use to collect unpaid debts. It involves a legal process where your employer withholds a portion of your earnings to satisfy the debt. This process can cause significant financial strain and stress.
Even so, it’s important not to panic or ignore the situation — solutions are available. Understand the wage garnishment process and learn how to prevent or stop it if a credit card company is garnishing your wages.
Read on to learn more about wage garnishment by a credit card company, the legal requirements creditors must follow, and practical strategies you can employ to protect your wages and maintain financial stability.
Understanding Wage Garnishment
Wage garnishment is a legal procedure in which an employer withholds a portion of a person’s earnings to repay a debt. This process typically occurs after a court order and continues until the debt is fully paid or resolved.
Types of Wage Garnishment
Court-ordered garnishment requires a creditor to file a lawsuit and obtain a judgment. Once there’s a judgment, the court issues an order for wage garnishment. The employer withholds the specified amount from the employee’s wages and sends it to the appropriate party. Credit card and medical bill debts commonly use this type of wage garnishment.
Administrative garnishment is initiated directly by a government agency, such as the IRS or the Department of Education, without involving the court system. The agency can enforce garnishment for public debts such as unpaid taxes or defaulted student loans. Again, the employer must comply with the agency’s notice to withhold and remit the specified amount.
Legal Framework for Wage Garnishment
Knowing the laws and your rights is important if you’re facing wage garnishment.
Federal Laws Governing Wage Garnishment
Certain federal laws are designed to protect employees from excessive garnishment and ensure they retain enough income to cover living expenses. The primary federal law in this area is the Consumer Credit Protection Act (CCPA).
The CCPA limits employers from garnishing more than a certain amount of an employee’s disposable earnings in any workweek. Disposable earnings represent the income remaining after deducting legally required amounts such as federal, state, and local taxes, Social Security, unemployment insurance, and retirement contributions.
The maximum amount that can be garnished is the lesser of:
- 25% of the employee’s disposable earnings, or
- The amount by which the employee’s disposable earnings exceed 30 times the federal minimum wage.
The CCPA also prohibits employers from terminating an employee because the employer garnishes their wages for any one debt. However, this protection does not extend to employees whose wages are garnished for multiple debts.
Specific Types of Garnishments
There are also special rules for specific types of garnishments:
- Child Support and Alimony: Up to 50% of an employee’s disposable earnings can be garnished if they support another spouse or child and up to 60% if not. An additional 5% may be garnished for support payments more than 12 weeks in arrears.
- Federal Student Loans: Up to 15% of disposable earnings can be garnished for defaulted federal student loans.
- Unpaid Taxes: The amount garnished for unpaid taxes varies based on the taxpayer’s financial situation and the number of dependents. The IRS provides tables to determine the exact amount.
Administrative Wage Garnishment (AWG)
The Debt Collection Improvement Act of 1996 allows federal agencies to collect delinquent non-tax debts without a court order through administrative wage garnishment. This allows agencies to garnish up to 15% of disposable earnings.
Bankruptcy Code
The U.S. Bankruptcy Code provides certain protections and relief for debtors. This includes the automatic stay provision, which halts most wage garnishments once you file for bankruptcy.
State Laws and Variations
Each state has its own laws governing wage garnishment, which can provide additional protections and limitations beyond federal regulations. State laws vary widely and can affect the amount that can be garnished, the types of income exempt from garnishment, and the procedures creditors must follow.
Garnishment Limits
While federal law sets baseline limits, many states impose stricter limits. Some states, like Texas, limit wage garnishment to child support, taxes, and student loans, prohibiting most other types of garnishment.
Exempt Income
States may exempt certain types of income from garnishment, such as Social Security benefits, retirement benefits, unemployment compensation, workers’ compensation, and public assistance.
Maximum Garnishment Amounts
Some states set lower maximum garnishment amounts than federal law. For instance, in New York, the maximum garnishment is the lesser of 10% of gross income or 25% of disposable earnings, provided the debtor’s weekly income exceeds 30 times the state minimum wage.
Protections Against Job Termination
While federal law prohibits firing an employee for a single garnishment, some states extend this protection to multiple garnishments.
The Process of Wage Garnishment
Pre-judgment
The process for garnishing wages can vary. Generally, however, the process follows these steps:
Initial Debt Collection Efforts. The credit card company attempts to collect the debt through regular means such as phone calls, letters, and negotiating payment plans.
Filing a Lawsuit. If debt collection efforts fail, the creditor files a lawsuit against the debtor in the appropriate court. The lawsuit includes a legal complaint detailing the amount owed and the reasons for the claim.
Service of Process. The debtor is formally served with the lawsuit, ensuring they receive legal notice of the complaint. The service of process must be completed according to state laws.
Court Hearing and Judgment. A court hearing is scheduled where both the creditor and the debtor can present their cases. If the debtor does not respond or appear, the court may issue a default judgment in favor of the creditor. If the court rules in favor of the creditor, it issues a judgment specifying the amount owed by the debtor.
Post-judgement
Requesting a Garnishment Order. Based on the judgment obtained, the creditor files a request for a wage garnishment order with the court. This involves submitting additional paperwork and possibly attending another court hearing.
Issuance of Garnishment Order. If satisfied, the court reviews the request and issues a garnishment order. The order specifies the amount to garnish from the debtor’s wages.
Employer Notification. The creditor or the court serves the garnishment order to the debtor’s employer. The employer must legally comply with the order and withhold the specified amount from the debtor’s wages.
Wage Withholding and Remittance. The employer withholds the specified amount from the debtor’s disposable earnings (earnings after legally required deductions).
As the garnishment order directs, the employer sends the withheld amount to the appropriate party (court, creditor, or collection agency).
Debtor’s Rights and Exemptions. The debtor may have the right to dispute the garnishment order if they believe it is improper or the amount is incorrect. They may also claim exemptions based on state and federal laws, potentially reducing or stopping the garnishment. Debtors may request a court hearing to present evidence of financial hardship or other defenses.
Duration of Garnishment. The creditor continues to garnish wages until fully paying, settling, or resolving the debt. The creditor must notify the employer and the court upon satisfying the debt, prompting the cessation of garnishment.
Impact of Wage Garnishment on Consumers
Wage garnishment can have significant financial, emotional, and social consequences for consumers with ongoing debt issues. Here are some key impacts:
Reduced Income
Garnishment reduces the debtor’s take-home pay, making it more challenging to cover living expenses such as rent, utilities, groceries, and transportation. Relying on credit to meet basic needs can lead to a cycle of financial instability and increased debt.
Job Security
While federal law prohibits employers from terminating an employee due to a single wage garnishment, job security can still be at risk if multiple garnishments occur. The garnishment process can also affect relationships with employers and coworkers, potentially creating a sense of shame or tension in the workplace.
Legal Costs
Consumers may incur additional legal costs if they attempt to dispute the garnishment or navigate the legal process. Hiring an experienced debt-help attorney may help, but attending court hearings can add to the financial burden.
Long-Term Financial Health
Prolonged garnishment can make long-term financial recovery more difficult, especially when paying down debts, saving for the future, or investing in major life goals such as homeownership or education.
Options to Get out of Wage Garnishment
Getting out of wage garnishment can be challenging, but there are several options you can explore to either stop or reduce the garnishment.
Negotiate with the Creditor
You might be able to contact the credit card company directly to negotiate a settlement or payment plan. Creditors may be willing to accept a lump-sum payment or a structured repayment plan in exchange for lifting the garnishment. Often, you will need an experienced debt resolution specialist like an attorney to help you. For instance, you might need to show evidence of financial hardship to convince the creditor to agree to more manageable terms. You’ll often have a more successful outcome if you work with a debt relief attorney.
Request a Garnishment Modification
Another option may be to file a motion with the court to modify the garnishment. In some cases, the court may reduce the amount it will garnish from your wages if you can prove it creates undue financial hardship. Again, you may want to work with an experienced debt relief attorney who can help you provide detailed documentation of your financial situation.
Claim Exemptions
Federal and state laws allow for certain exemptions that protect a portion of your income from garnishment. Common exemptions include a portion of your disposable earnings, Social Security benefits, retirement income, and other protected sources of income.
Challenge the Garnishment
If you believe the garnishment was improperly issued, you can challenge it. If you have grounds to dispute the validity of the debt, then you can file a formal objection with the court. You can challenge the garnishment based on errors in the judgment, mistaken identity, or if you already paid the debt in full.
File for Bankruptcy
Filing for bankruptcy can trigger an automatic stay, temporarily halting most wage garnishments. Depending on the type of bankruptcy (Chapter 7 or Chapter 13), it may discharge or restructure your debts. It’s important to consult with a bankruptcy attorney to determine if this option is appropriate for your situation and to navigate the legal process.
Try Credit Counseling Services
It may also be possible to work with a credit counseling agency to develop a debt management plan (DMP). Credit counselors can negotiate with some creditors on your behalf to reduce interest rates and establish a manageable repayment plan. Successfully adhering to a DMP may lead to the creditor lifting the garnishment.
Preventing Wage Garnishment
Here are some effective strategies to avoid wage garnishment:
Create a Budget
If you haven’t already, it’s helpful to have a comprehensive budget in place. This allows you to track your income and expenses, prioritizing essential expenses and debt payments. If necessary, look for ways to adjust your spending habits and allocate more funds for debt repayment.
Stay Current on Payments
Make timely payments on your credit cards, even if it’s just the minimum payment. It can help to set up automatic payments or reminders to ensure you don’t miss due dates.
Communicate with Credit Card Issuers
If you’re struggling financially, contact your creditors as soon as possible to discuss your situation. They may offer hardship programs, deferments, or modified payment plans to help you stay current.
Consolidate Debt
Consolidating existing credit card debt can help you secure lower interest rates or extended repayment terms. In turn, this can reduce your monthly payments and make it easier to stay current.
Consider Bankruptcy as a Last Resort
Struggling with credit card debt and can’t make payments? Consider consulting a bankruptcy attorney to explore options for a fresh start. However, remember that bankruptcy has long-term financial repercussions, so make sure to weigh all the consequences carefully.
Call Tayne Law Today for Help With Wage Garnishment
If you are having your wages garnished, don’t delay. Seek legal counsel to understand your rights and options. Wage garnishment lowers your earnings and makes it even more difficult to stay on top of bills. A reputable, experienced debt lawyer can help reduce or stop wage garnishment.
Tayne Law Group has assisted clients with debt relief for over 20 years. Our law firm finds solutions that work for your budget so you can get back on your feet quickly and resolve your debt once and for all. Call us at (866) 890-7337 or fill out our short contact form to get a free consultation and find out which options may work for you.
