In 2016, hundreds of millions of dollars in wages were garnished for unpaid child and spousal support. In 2015, debt collectors hired by the US Department of Education garnished more than $176 million in wages for unpaid student loans. One in ten people suffer wage garnishment for something, not the least of which is unpaid federal and state taxes.
Every year at least four million Americans (roughly three percent of the entire working US population), deal with some form of wage garnishment. Many debtors owe money to more than one creditor. You may have defaulted on several school loans and bank cards, while your neighbor may owe back state and federal taxes. And your co-worker may be current on his or her taxes but owe child support to different mothers for different children. The variations are endless.
The resulting reality is that multiple creditors may all seek to garnish your wages at the same time – regardless of whether their collective efforts would prevent you from supporting yourself or your family. The possibility of this immediately raises several crucial questions.
- Is there any priority as to who gets paid first?
- Is there any limit as to how many creditors can garnish your wages at one time?
- Is there any cap on the total amount of your wages that can be garnished, whether from one creditor (or ten)?
The answer to each of these questions is different and depends on a host of factors. Let’s discuss them below.
General Rule on Garnishment
A Wage Garnishment Order commands your employer to withhold a certain portion of your “disposable earnings" and pay the withheld portion over to the garnishing creditor. Each creditor may obtain its own garnishment order and if you owe more than one debt to a single creditor it may obtain multiple orders. Theoretically, there is no limit to the number of garnishment orders that can be issued or served on your employer.
However, under federal and state law all garnishment orders to limited to your “disposable earnings". See the US Department of Labor Fact Sheet #30 here. These are the earnings that remain after your employer withholds for things like taxes, unemployment insurance and social security. And while the laws on wage garnishment place no limit on the number of creditors that can simultaneously try to get your pay check, there is a limit to the total amount that can be garnished.
That limit will be also discussed below, as it depends on the type of debt involved.
Minimum Protection of Federal Law
Under the Federal Wage Garnishment Law, a creditor can generally garnish no more than twenty-five percent of your “disposable earnings". If it so desires, a state can reduce this amount even further for particular debts or circumstances, and some do. If twenty-five percent of your wages exceeds thirty times the federal minimum wage (multiple the current minimum wage by 30), then that is the maximum that can be garnished. In other words, whichever is less, subject to exceptions for child support, which can go as high as sixty percent, and unpaid back taxes, which vary depending on your standard deduction and claimed dependents. All of this is addressed in greater detail in the US Dept of Labor Fact Sheet #30.
Priority Between Creditors
The twenty-five percent rule sets a cap on the total amount of your wages that can be garnished. This single cap applies no matter how many wage garnishment orders an employer receives (Consumer Credit Protection Act of 1968). Though states vary the rules slightly, if twenty-five percent of your disposable wages isn’t enough to satisfy multiple garnishment orders and creditors, the late comers must wait. Generally speaking, the rule is First in Time, First in Right. This means – The first creditor to serve your employer with a valid wage garnishment order gets its order paid in full first.
Once the first creditor is paid, the second creditor steps up to the plate. The order of garnishment is determined, not by when the debt was incurred or the date of the default in payment, but when the garnishment order was validly served on the employer. It is viewed, in other words, from the viewpoint of the employer which is duty-bound to comply with all valid garnishment orders to the extent of the maximum. Typically therefore one garnishment order is satisfied at a time, up to the maximum allowed, followed by the next validly issued and served garnishment.
As might be expected, special priority goes to certain debts. Child support, spousal support, and past due taxes take precedence, in that order, followed in time by everything else. This will only affect you in the sense that you prefer that certain creditors, such as your ex-spouse with custody of your children, be paid first.
Defenses to Wage Garnishment
Certain states in the US are more protective of the debtor than others. The state of Texas, for example, prohibits wage garnishment altogether except for child support and certain government-related debts like past due taxes. Since you must always be notified by the creditor before it seeks to obtain or apply a garnishment order against you, that is the time to fight back. You can prove that you don’t owe the money, that the debt is time-barred, or that you’ll suffer an impossible hardship. Bankruptcy for most non-governmental debts is also a possibility, as discussed here.
The IRS for one, recognizes a hardship defense that must be raised as soon as the garnishment process begins. Right there on the official IRS website, you are advised to contact the office between 8:00 AM and 8:00 PM if the tax levy is causing an immediate financial hardship to you or your family. Before calling, make sure to assemble all of your relevant income sources, bank statements, and debts. Though the IRS will not reduce your unpaid taxes for hardship, it often will reduce the amount of the garnishment. A similar exemption is allowed when faced with a student loan garnishment.
Ironically, for non-tax and non-school loan debts, the law is not as compassionate. While some states do recognize a financial hardship exemption for other debts, not all do. For example, the hardship defense can be raised in the state of Oklahoma (see general article on Oklahoma debt collection basics), but only upon proof that all of the debtor’s income is needed to support his or her family.
Georgia also allows hardship considerations, but only if the hardship results from serious illness, disability, or divorce (see this article for filing for hardship in Georgia). Meanwhile, Florida requires the debtor to be head-of-household and other states provide a modicum of protection for low-income debtors.
Income Exempt from Garnishment
Something to keep in mind is that certain sources of income are entirely exempt from garnishment. For these, it does not matter whether you owe a million dollars to one creditor that you cannot pay, or $5,000 each to five separate creditors that you cannot pay. Though there are some nuances depending on your particular situation, the following sources of income are garnishment-exempt:
- Social Security
- Child support
- Spousal support
There are limits to how much of your wages can be garnished, and both federal and state exemptions for hardship do exist. However, the viability of hardship as an exemption or defense depends on the type of the debt involved and your personal situation. Given these complexities, and since hardship must be proven with records and paperwork, debtors should seriously consider consulting a debtor-creditor attorney in your locale or a non-profit debt assistance service. These can be found by searching online.
Department of Treasury, Administrative Wage Garnishment, Final Rule, https://fiscal.treasury.gov/files/cross-servicing/awg-instr-SF329.pdf
Federal Wage Garnishment Law, https://www.dol.gov/whd/regs/statutes/garn01.pdf
Garnishment, 31 USC section 3730D – Garnishment, http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics
Social Security, Old Age and Survivor’s Insurance, https://www.ssa.gov/OP_Home/rulings/oasi/41/SSR79-04-oasi-41.html
US Department of Labor Fact Sheet #30, https://www.dol.gov/whd/regs/compliance/whdfs30.pdf
Millions of Americans Wages Seized Over Credit Card and Medical Debt, http://www.npr.org/2014/09/15/347957729/when-consumer-debts-go-unpaid-paychecks-can-take-a-big-hit
Child Support is the Top Cause of Wage Garnishment, https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/chid-support-wage-garnishments.aspx