Garnishment – What you need to know

A garnishment is the process of withholding earnings from an individual to repay a debt obligation. In most situations, the employer is required to withhold funds from a legal or equitable procedure. This may be because of a court order, an IRS tax debt or other collection method. If you are facing garnishment, it pays to know what your options are and what is likely to happen to you.

Garnishment is a legal process. Not just anyone can withhold money from your paycheck. The only way for an individual, bank, tax authority or anyone else to garnish you is to take legal action against you (though there are several methods of doing so.) In the case of wage garnishment, the most common form, the debt collector must win the lawsuit and be given the right to take this step.

  • If you do not show up in court to fight the charges against you, it is likely that the judge will order a garnishment up to the amount the person suing you is requesting.
  • Federal limits are in place for wage garnishment. Under wage garnishment laws, no creditors can garnish more than 60 percent of your wages. This is an extreme amount and not often awarded.
  • Four states do not allow wage garnishment from creditors, such as credit card companies. Those four states are South Carolina, Pennsylvania, North Carolina and Texas.

If you are being sued by anyone, contact an attorney and discuss your rights under wage garnishment laws. Garnishment can last for years. You will want to take action to fight this legal maneuver.

Types of Garnishment

Individuals who owe money to others may face garnishment. The type of garnishment is dependent on the type of organization pursuing you for the debt. Here are some examples:

Wage Garnishment: This is the most common form. In this type, a creditor such as a utility company, bank or other business you owe funds to, will file a lawsuit in a court of law requesting the garnishment. If awarded, your employer will be obligated to withdraw the required portion of your wages and send directly to the collector according to the agreements set forth by the judge.

Attachment: An attachment of earnings is a similar process. In this case, the garnishment is not just applicable to wages but also to any sales commissions or benefits the individual earns. It can also apply to property. In this case, the property’s ownership may be divided. A court order is also required.

Military Garnishments: The Defense Finance and Account Service (DFAS) places judgment and collects garnishments for those in the military. If you fail to pay your debts but receive military pay, the DFAS will collect those funds and distribute to your creditors. This organization also collects debts owed to the Department of Energy, Health and Human Services, Veterans Affairs, the Environment Protection Agency and the Broadcasting Board of Governors. A court order or judgment may be necessary.

IRS Garnishment: Like other forms of wage garnishment, in this case, the IRS can collect from a person’s earnings to collect federal tax obligations. However, the IRS levy, as it is often called, does not require a court order. You will first receive a Notice of Demand for Payment. Then, a Final Notice is set. A levy notice is sent giving you at least 30 days to make payment. If a taxpayer does not make payment at that point, the IRS will contact your employer to begin the garnishment.

What’s the Maximum Limits on Wage Garnishment?

The Consumer Credit Protection Act, the main wage garnishment law you need to know, provides some specific protections for you. Employers must follow the orders set forth by the court. Not doing so can result in fines. If you are dealing with garnishment, do not fight with your employer but rather your creditor.

The following are the maximum limits placed on the collection of debts through the garnishment process. The most you can have taken from your check is the lowest of the following as it applies to your situation.

  • Up to 25 percent of your deemed disposable income; those with disposable income under $290 will have no garnishment
  • Any amount of money higher than the federal minimum wage times 30, currently $217.50 (as the rate right now is $7.25)

Keep in mind that in extreme cases, wage garnishment laws allow a much larger amount to be used to repay the debts you owe. These limits also only apply to creditors coming after you for a repayment of debt. These maximums do not apply to any type of state or federal tax debt, voluntary wage assessments, and support for children, spouses, or bankruptcy court orders. In those cases, you could pay even more.

What Is Your Disposable Income?

The maximum limit applies to your disposable income. To calculate it, take your gross income and subtract any deductions legally allowable. These may come from state, local or federal payments, such as paying Social Security deductions or unemployment insurance. However, other deductions from your paycheck may not apply. This includes deductions for your health insurance, life insurance or even the contributions you make to charitable organizations.

Common Reasons for Wage Garnishments

The following are some of the most common types of garnishments you could face. This is not an exhaustive list since garnishments can include other types of debt.

Child Support or Spousal Support Garnishments

Those who fail to pay court-ordered payments for child or spousal support may face garnishment as a result. In this case, garnishment laws allow for as much as 50 percent of your wages to be garnished if you are supporting another child or spouse (such as being remarried.) However, if you are not supporting anyone else, then up to 60 percent of your wages may be garnished. For those that owe more than twelve weeks of missing payments, this amount can increase by another five percent.

Federal Debt Garnishment

Those who owe federal debts, including taxes to the IRS, may face garnishment. The government agency or their collectors can get a court order to force you to pay up to 15 percent of your disposable income to cover debts. For tax payers that owe money to the Department of Education, the agency can garnish up to 10 percent of your disposable income, such as for repaying federal student loans that you have fallen behind on.

State Garnishments

Each state has its own wage garnishment laws. It is important for you to learn about these laws if you owe money to your state, such as for back taxes. In many cases, the state’s laws are similar to the federal garnishment restrictions.

What to Do If You Are Facing Wage Garnishment

If you are facing garnishment, you do have options. Take the following actions:

  • Find out why you are being garnished.
  • Ensure that you do owe the debt you are being garnished for by asking the creditor or other agency for proof of your debt obligation.
  • Respond to any legal summons or court details – you need to go to court to avoid wage garnishment. Judges will work with you but if you fail to show up, you will be garnished.
  • Talk to an attorney about your options for wage garnishment. You may be able to settle the debt outside of court for less.

Wage garnishment generally will continue until it is stopped by a court order or until the debt is paid in full. Do not wait. Seek help as soon as possible.