People get behind in their bills for all sorts of reasons, some within their control, some not. Changes in the economy, the collapse in the mortgage industry, a plunging stock market – these forces can overwhelm any family, especially those living on low income.
No matter what the economy is like, or the personal hardship of a particular wage earner, creditors are still entitled to be paid. The wage garnishment process is one way that creditors can collect unpaid debts when the collection process fails. When bills for credit cards, medical expenses, federal and state taxes, school loans, and child or spousal support fall behind, creditors can garnish wages or attach property to satisfy the debts.
When garnishing wages, however, the process is governed by federal and state laws designed to protect debtors from overreaching and excessive attachments. There are many statutory protections at the federal level, but South Carolina is unique in its decision to totally protect wages from garnishment for the “consumers debts” of any debtors living in the state.
Everyone involved in the debt collection process – creditors, employers and debtors – have certain rights and obligations, so let’s examine the details more closely.
How the Garnishment Process Starts in South Carolina
When a debtor falls far enough behind in his debts that he cannot pay them despite collection efforts, the creditor will often give up, hire a lawyer, and file a lawsuit to collect the debt. As uncomfortable as it may be, the debtor when served with the lawsuit should look carefully at the claims and examine them for accuracy.
Many times the debt is misstated, and sometimes the action is time-barred, meaning the statute of limitations has run and the debt can no longer be collected even though it is owed. In South Carolina, the creditor has three years from default, last partial payment, or last written acknowledgment of the debt, in which to file a collection lawsuit. These defenses should be diligently asserted in answer to the complaint.
Issuance of Wage Garnishment Orders in South Carolina
Despite the various defenses to collection, most debt collection actions end in a money judgement for the creditor in the amount of the delinquent debt, plus interest and penalties. Armed with the judgment, the creditor can then request the Court to issue a wage garnishment order directed to the debtor’s employer. Once served with a wage garnishment order, the employer is obligated to comply with the order and pay over part of the employee’s wages to the court or creditor. In meeting their obligations, however, creditors must be sure not to run afoul of any applicable federal or state laws which exempt the debt from collection or limit the amount subject to garnishment.
The Important Difference Between Employees and Independent Contractors
The workforce is not like it was even a decade ago. More workers today are freelancers working from home or independent contracts doing jobs project-by-project than ever before. Some of this has been made possible by technology and the internet, such that many workers don’t earn overtime, receive worker’s compensation, qualify for unemployment benefits or have FICA withheld. Accordingly, a company served with a wage garnishment order for any such person, either freelancer or independent contractor, has no choice but to return the garnishment unpaid for lack of garnishable wages.
The Role of Exemptions and Protections against Wage Garnishment
Were it not for exemptions and protections against the collection of past due debts, the first creditor to walk through the employer’s door with a money judgement in hand would be able to garnish up all of the employee’s wages in one fell sweep. With this power, there’s no doubt that many creditors would think nothing of rendering the debtor penniless, leaving him nothing to take home and sending his family onto the public dole. To ensure that this does not happen, Congress has passed federal laws that exempt and limit what wages can be garnished.
Debts Exempt from Wage Garnishment under Federal Law
As in all states, debtors living in South Carolina may invoke federal law to claim any available exemption from the wage garnishment process. While states like Wyoming liberally exempt virtually all private and public pensions from attachment, South Carolina does not do so. However, under federal law, social security payments are exempt from garnishment except for certain carve-outs for delinquent federal taxes, and child and spousal support, for which social security benefits can still be attached.
The Protections of Federal Law
The federal Consumer Credit Protection Act, as applied in South Carolina, puts a lid on how much of an employee’s wages can be garnished regardless of any independently-enacted state law. Referred to as the “the 25-30 rule,” the limitations protect 25% of the employee’s “disposable wages” from wage garnishment, or any amount less than thirty times federal minimum wage, whichever provides greater protection. These federal protections, however, are not generally necessary in South Carolina because the state has passed even stronger protections for “consumer debts.”
South Carolina’s Unique Exemption for Consumer Debts
It is one of the rare few to do so, but South Carolina has passed legislation at the state level that exempts virtually all “consumer debts” from the wage garnishment process. Yes, that’s correct. The “25-30” rule ordinarily is not even needed to protect against garnishment of monies due from credit card, retail store, auto, and other consumer debts where credit is extended to buy and sell consumer goods. However, there are certain exceptions to the sweeping “consumer debt” exemption, such as taxes, support, and student loans, but everything else is not reachable by a wage garnishment order.
IRS Tax Delinquencies, Bankruptcies, Child Support, and Student Loans
Superseding South Carolina’s consumer debt protections are federally-mandated rules governing bankruptcies, federal income taxes, child support and student loans. Here are the ways these play out:
- Since 1988, court orders for child support all come with an automatic income withholding order allowing up to 50% withholding from noncustodial spouses with family or children, up to 60% withholding for noncustodial spouses with neither, and an additional 5% if such support is over twelve weeks in arrears.
- The IRS can garnish wages without a court order for as much as 70% of disposable income, subject to reduction for hardship (with 50% being common). The amount subject to garnishment depends on a host of factors, including deductions and total taxes due.
- The government can garnish up to 15% of your wages for unpaid student loans.
Prioritizing Multiple Garnishment Orders
It is not uncommon for debtors who have fallen behind on one debt to fall behind on another. When applying any of the limits previously mentioned, it makes no difference how many garnishment orders are in place. However, there is a legally-mandated order of priority that must be followed by the garnishing employer regardless of which wage garnishment was served first:
- Child support and alimony comes first,
- Federal, state, and local taxes are second,
- Student loans, third, and
- Private consumer debts last, which are paid on a first-come, first-serve basis only when for some reason the exemption may not apply (as for some out-of-state debts).
Conclusion
South Carolina has one of the strongest protections in America against aggressive wage garnishment actions, extending broad protection to “consumer debts”. Combined with the many and diverse federal protections, it behooves all debtors except those with a small remaining debt to consult a professional with an expertise in creditor-debtor law and the garnishment process, such as an attorney or CPA. With these professionals you are much more likely to find peace of mind and a palatable result.
References:
South Carolina Law
Labor and Employment Generally, Payment of Wages, Chap. 10, Section 41-10-10.
Employer Liability for non-compliance with garnishment order: SC Rev. Sec. 63-17-1410.
Exemptions: SC Code § 15-41-30
Statute of Limitations on Debt Collection and Breach of Contract: 3 years, SCCLA 15-3-530, generally, 15-3-120.
Any partial payment or acknowledgment in writing tolls the Statute of Limitations, SCCLA 15-3-30.
Federal Law
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
https://www.dol.gov/whd/regs/statutes/garn01.pdf
https://www.dol.gov/whd/garnishment/
https://www.dol.gov/whd/minimumwage.htm
Resources Online
South Carolina Payment of Wages: https://www.scstatehouse.gov/code/t41c010.php
South Carolina Fair Debt Collection FAQS: https://consumer.sc.gov/consumer-faqs/fair-debt-collection-faqs
