Like every other state, Colorado was given the choice of following the federal minimum rules on garnishments or adopting its own more protective protocols. It chose the former. So to understand how garnishment works in Colorado – what can be garnished, and what can’t – the primary place to look is the federal law, which is known as the Federal Wage Garnishments Law.
General Meaning of Wage Garnishment
Wage garnishment is a method of attachment that goes to your employer and reaches your pay check. Typically a creditor first obtains a money judgment against you, then has it converted by the trial court into a garnishment order. That order is then delivered directly to your employer and copied to you.
By law your employer must then do what the order says and withhold certain sums from you pay check each pay period until the garnishment is satisfied and the debt paid, absent another arrangement being made with you. The creditor of course can be a private company, spouse, the IRS or any other government entity to which you owe money, or can be a debt collector to whom the debt has been assigned.
Since your pay check will be impacted, you of course have the chance and right to lodge an objection to the garnishment, both before and after it is delivered to your employer. Time, however, is of the essence, and if you sit on your rights, they will often be limited or even lost.
To be sure, the law does not speak in terms of “pay check" or “wages." Rather, it speaks in terms of “disposable earnings."
Technically, “earnings" are defined in a very broad way. They include such things as regular hourly wages, executive monthly salaries, payment for piecemeal work, commission-based fees that depend on sales or some other financial accomplishment, incentive bonuses, pension payments, retirement money and the like.
“Disposable" earnings by contrast are wages or compensation that remain after subtraction of standard, legally-required deductions. Legally-required deductions include such items as the amounts withheld for federal income taxes, social security withholdings, and any variety of state, county or city taxes.
Sometimes money is directly withheld from your pay check for your insurance coverages (life, health, etc.), your union dues, and the like. These are not considered legally-required and thus are not included in the calculation process for determining what is “disposable."
Note: The Fair Labor Standards Act has created unique rules that must be followed for anyone seeking to garnish the wages of state, county and city employees.
Garnishing Wages in Colorado
As stated above, generally speaking, before creditors can garnish your wages, they must first obtain a judgment against you for some monetary amount (as opposed to an injunction or order to do or not to do something). Certain well-established exceptions to this rule do exist, however.
Some of the exceptions that do not require the creditor going first to court and obtaining a judgment against you for a sum certain in money:
- Child support that is late or past due.
- Alimony or spousal support that is delinquent.
- Money, fines or penalties due and outstanding to any federal government offices, or any arm of the state of Colorado, including its towns, cities, and/or counties.
- Federal or state taxes for income, property or sales that are in arrears.
- Past due and unpaid student loans.
Note: So-called “voluntary wage assignments" are deemed off limits, protected as private dealings between creditor and debtor. They are thus exempt from the protections extended by the federal garnishment laws. Many so-described “voluntary wage assignments," however, have been outlawed by the Federal Trade Commission’s rules on credit practices.
Colorado Wage Garnishment Has Limits
Figuratively speaking, federal policy wants to make sure that garnishments don’t put you and your family onto the streets. To protect against this, it places precise limits on how much of your pay check a creditor can attach and pay over to a creditor at any one time.
Though the limit varies, mirroring the sliding scale of the federal law, Colorado generally limits wage garnishments in one of two ways. One is 25% of your “disposable wages," according to the formula we previously discussed. The other is the amount of your disposable earnings that does not exceed 30 times the current federal minimum wage. This can be referred to as the “25-30 rule".
Since July 2009, the federal minimum wage has been $7.25 per hour for employees with medical insurance premiums being automatically taken out of their pay check, and $8.25 for employees without such premiums being automatically taken out.
Special Treatment for Child Support and Alimony
For nearly three decades all court orders for child support and alimony have included an automatic component for wage garnishment. So when it comes to child support and alimony, garnishment is now routine. No separate garnishment order need be obtained.
As mentioned above, Colorado has adopted the limits set out in the federal Consumer Credit Protection Act (the “CCPA") as to the maximum amount that can be garnished for child support (or put another way, the minimum amount of wages that must be protected from garnishment).
Under the CCPA, the “25-30 rule" bows to garnishments for child support and alimony, replacing them with another set of rules weighted less protectively for the debtor spouse. Thus, when garnishments for child support or alimony are involved, as much as 60 percent of the debtor spouse’s net pay check can be garnished, or put another way, only 40 percent of his or her wages are protected from garnishment.
Sometimes the debtor spouse has multiple support obligations, kicking another set of rules into play. If the debtor spouse is also supporting another child or spouse, the amount that can be garnished rises to 50 percent, protecting only half of the debtor’s wages provided he or she is current in his support payments. If the spouse debtor is past due for more than 12 weeks, another five percent may be garnished, thus in the extreme case allowing as much as 65 percent of a spouse debtor’s wages to be garnished.
Special Treatment for Other Debts
Certain other debts receive special treatment as well, also limiting the garnishment protections afforded the debtor under federal law. Here are some examples:
- The Colorado State Department of Revenue can attach as much as 50 percent of your net pay check (generally for taxes).
- The bankruptcy court in a Chapter 7 proceeding or trustee in a Chapter 13 proceeding may reach as much as 90 percent of disposable wages (but generally this high only when it is voluntary, whereby the debtor has agreed to this as part of a repayment plan).
- Following another complicated formula, the IRS can take as much as 70% of your net pay check, but hardship imposed by this on the debtor’s ability to meet essential needs is to be considered in setting the total sum to be garnished.
Priority for Certain Garnishments
It is sometimes the case that a debtor is dealing with two or more garnishment orders at the same time – for example, past due child support, delinquent federal taxes, and private credit card debts. In that situation, the employer must give priority to certain debts over others in the hierarchy of the garnishment process.
Here is the general order of priority in this hierarchy: past due child support always comes first, then delinquent federal income taxes, delinquent student loans, bankruptcies (including reorganizations and payment plans,) and finally Colorado garnishments and Revenue Department levies.
All of the foregoing take precedence over unpaid credit cards, consumer loans and even medical expenses, and it is the type of debt not the timing that matters. Further, in Colorado, a debtor can only be subject to one garnishment at a time.
Many employers consider the process of dealing with garnishments to be a hassle. No employer likes the extra burden of complying with the minutia of wage garnishment formulas and paperwork. As a result, some employers would rather discharge an at-will employee to avoid any further garnishment hassle. However, express provisions of federal law prohibit such actions, and since Colorado has adopted the federal law, it prohibits such terminations as well.
In conclusion, as you can see, garnishment law in Colorado has many nuances and can be quite complicated, especially when there are concurrent issues of child support, past due taxes and potential bankruptcy consideration. Accordingly, it is wise to engage qualified debtor-creditor, legal, and tax professionals in whatever field is presenting the challenges and issues at hand.
Public Law 99-150, enacted on November 13, 1985, amending the Fair Labor Standards Act
Title II of the Consumer Credit Protection Act, 15 U.S.C. Section 1671 to 1777) – applies to all garnishment orders