ADP’s research group reports that seven percent of American workers across the country have their wages garnished every year. Since the population of Delaware is nearly one million people, that’s nearly 70,000 employers and employees who are impacted by the wage garnishment process. Because employers and employees both have rights and duties, let’s review the wage garnishment process in Delaware to see how it works.
Sources of Wage Garnishment Law
Though wage garnishment takes place at the local level, wage garnishment laws derive from both federal and state legislation. At the federal level, the laws provide all debtors across America with a minimum level of protection against garnishment that’s grounded in public policy. Individuals states are allowed to provide even greater protections if they choose, and Delaware is such a state. Special consideration is given in the areas of taxes, child support, and student loans, but many debts resulting in wage garnishment derive from consumer loans.
How the Wage Garnishment Process Begins in Delaware
The first sign that a wage garnishment might be coming is when the patience of the creditor or its collection agency starts to wear thin. Debtors will know this time has come when they start receiving letters and/or emails stating “final effort to collect" or words to this effect. For most debts, the next step is for the creditor to hire an attorney and file a debt collection complaint against the debtor, and this is what the debtor should expect to see in most cases.
Like any other lawsuit, the complaint must be served on the debtor. Once served, and to avoid entry of a default judgement, the debtor should promptly answer the complaint and raise any applicable “affirmative defenses." The most common affirmative defenses are:
- the debt has already been paid in full or as a result of a prior settlement and compromise, or
- the claim is barred by the applicable statute of limitations.
In Delaware, the statute of limitations for ordinary consumer debts is four years, and for other contract debts, three years. Debts in default longer than that cannot be collected even if owed.
The Issuance of a Wage Garnishment Order
If the creditor prevails in its debt collection action, a judgement for a sum certain will be entered in favor of the creditor and against the debtor, in the amount of the debit plus interest and allowable penalties. Sometimes the debtor loses even when the debt is contested. Other times the complaint goes unanswered and a default judgement is entered. Certain delinquent debts, such as taxes and child support, do not require a money judgement. In any case, once the judgment is entered, the creditor may apply for a wage garnishment order which the creditor can serve on any of the debtor’s employers.
Important Distinction Between Employees and Independent Contractors
As with the the rest of the world, Delaware workers today are just as likely to be independent contractors or freelancers as they are traditional employees. The distinction is important in the area of wage garnishment law because a wage garnishment order only reaches employee wages. An employee typically is a person who receives a paycheck with FICA withheld. The earnings of an independent contractor or freelancer, because technically not wages, cannot be reached with a wage garnishment order. (Do be aware that other collection orders can reach independent contractor and freelance income, but only if the creditor is persistent and applies for such relief.)
Wage Garnishment without Protections
Without special legislation at the federal or state level, aggressive creditors theoretically could attach all of a debtor’s wages, literally putting him and his family onto the street or unable to keep the lights on and feed his children. Such social disruption would saddle the government with the burden of having to manage and provide for their welfare. So that this doesn’t happen, the federal government has enacted legislation to protect people in debt with certain rights and protections.
Addressing the Wage Garnishment Order
The debtor-employee is notified when the creditor applies for the wage garnishment order. If not addressed earlier, this is the time for the debtor to take a very careful look at the amount of the attachment and any other relevant details. Both federal and Delaware state law provide protections to the employee provided these protections are raised and asserted diligently.
At the federal level, the Consumer Credit Protection Act provides a floor of protection against consumer debts – credit card, auto, and the like – often referred to as the “25-30 rule." This rule works by protecting seventy-five percent of the employee’s “disposable wages" from garnishment, leaving only twenty-five percent open to garnishment – hence “the 25% rule.". Generally speaking, “disposable wages" are what is left after FICA (which is about 90% of total gross wages). Certain private pension and insurance payments might also be deducted depending on the debtor’s specific employment benefits.
The flip side of the “25-30" rule provides a second protective floor to the amount that can be garnished. It provides protection for up to thirty times the federal minimum wage, only allowing garnishment of amounts above that. However, Delaware has stepped in to help debtors even further by adopting a “15%" rule. This rule further limits garnishments to 15% of the debtor-employee’s “disposable wages," which is very good news for the employee because the most protective rule of the three is what the court must apply.
Special Limits for Bankruptcy Debtors and IRS Tax Debts
The federal protections of the Consumer Credit Protection Act – “the 25-30 rule" – and the state protections of Delaware – “the 15% rule" – do not apply to delinquent federal taxes and bankruptcies. As much as 90% of wages can be attached in both Chapter 7 straight bankruptcies and Chapter 13 reorganizations. However, this rarely happens based on considerations of hardship which the bankruptcy laws are designed to mitigate. Similarly, the IRS can exceed “the 25-30 rule" by attaching as much as 70% of wages. This, too, is subject to a defense of hardship. In either case, the courts rarely allow garnishments to encroach on necessary living expenses.
Multiple Garnishment Orders
When debtors fall on bad times, often they are the subject of more than one wage garnishment order. In this situation, the employer must be diligent in respecting the proper priority of garnishment orders. It is not simply, “first in time, first in right." Always subject to federal and Constitutional limits, employers must garnishments in the following priority (regardless of who was first):
- Unpaid child and spousal support,
- Delinquent taxes at the federal, state, and local levels,
- Student loans that have fallen in arrears, and
- Private consumer debts, which are paid, “first come, first serve."
Job Protection for Employees Whose Wages are Garnished
Dealing with wage garnishments can be a hassle, especially for the smaller employers. This can prompt some employers to revert to terminating the employee rather than deal with the hassle. The federal government does not want this and has made such acts illegal for the first wage garnishment. After that, the federal law does allow the employer to terminate the employee with impunity. This is where advising and working with your creditors offers a opportunity for a win-win compromise, because an unemployed debtor already on hard times is more likely to file for bankruptcy than pay the debt.
The interaction of federal and state laws governing debts, bankruptcy, child and spousal support, unpaid student loans, and the like – all can be confusing and difficult to sort out. Knowing when and how to raise the best affirmative defenses can be a real asset. While small debts might easily be worked out, the larger ones demand a higher level of analysis and attention. In these cases, it might be wise to engage a qualified creditor-debtor attorney or other professional who can help you resolve the debt and give you peace of mind.
30 DE Code § 556 (2016), Execution of Judgements
19 DE Code, § 1101, et seq., Labor, Wage Payment and Collection
10 DE Code § 3502, Attachments
Delaware Code Online: http://delcode.delaware.gov/title19/c011/index.shtml
Instructions for Court-Ordered Wage Garnishments in Delaware: https://revenuefiles.delaware.gov/docs/wages.pdf
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
Secondary Online Resources
Protecting Consumer Rights Delaware: http://protectingconsumerrights.com/debt-collection-problems/statute-of-limitations-by-state/states/delaware/