This fact sheet provides general information concerning the CCPA’s limits on the amount that employers may withhold from a person’s earnings in response to a garnishment order, and the CCPA’s protection from termination because of garnishment for any single debt.
A wage garnishment is any legal or equitable procedure through which some portion of a person’s earnings is required to be withheld for the payment of a debt. Most garnishments are made by court order. Other types of legal or equitable procedures for garnishment include IRS or state tax collection agency levies for unpaid taxes and federal agency administrative garnishments for non-tax debts owed to the federal government.
Wage garnishments do not include voluntary wage assignments – that is, situations in which employees voluntarily agree that their employers may turn over some specified amount of their earnings to a creditor or creditors.
Having wages garnished by a collection agency can be a stressful and confusing experience. As a consumer, it’s important to understand your rights and the rules that debt collectors must follow when pursuing legal action to garnish wages. This article will provide a comprehensive overview of wage garnishment and how to respond if you find yourself in this situation.
What is Wage Garnishment?
Wage garnishment is a legal process that allows creditors and debt collectors to seize a portion of a debtor’s paycheck to satisfy an outstanding debt It typically occurs after a creditor has won a court judgment against the debtor
The judgment serves as a legal authorization for the creditor to garnish wages until the debt is paid off. The creditor sends the garnishment order to the debtor’s employer, requiring them to withhold a certain amount from each paycheck and send it to the creditor
Can Any Debt Be Garnished?
Not all debts can be garnished. Common examples of garnishable debts include:
- Credit card debt
- Medical debt
- Personal loans
- Payday loans
- Federal student loans
Debts that typically cannot be garnished include:
- Child support
- Federal taxes
- Federal student loans (with exceptions)
- Alimony
How Do I Know If I’m Being Garnished?
If a creditor is garnishing your wages, you will receive notice from both the court and your employer. Signs that a garnishment order may have been issued include:
- Notice of a lawsuit or court judgment against you for an unpaid debt
- Unexpected smaller paychecks
- Notification from your employer about a garnishment order
Review recent court documents and pay stubs carefully to confirm if wage garnishment is occurring.
Can Any Creditor Garnish Wages?
For a creditor to garnish wages legally, they must first:
- Obtain a court judgment against you
- Send you notice of the garnishment order
- File the garnishment order with your employer
The Fair Debt Collection Practices Act prohibits abusive and deceptive collection practices. Reputable collectors will follow proper legal procedures. Be wary of any creditor or collector who threatens wage garnishment without a court order.
How Much Can Be Garnished from My Paycheck?
The amount that can be garnished is limited by federal and state law. The Consumer Credit Protection Act sets maximum garnishment amounts based on your disposable earnings and whether you are having your wages garnished for child support.
For non-child support garnishments, creditors cannot seize more than 25% of your disposable earnings in a week or the amount by which your disposable earnings exceed 30 times the federal minimum wage, whichever is less.
So if your disposable weekly earnings exceed $217.50 (30 x $7.25 federal minimum wage), up to 25% above $217.50 can be garnished. State laws may further restrict garnishment amounts.
How to Respond to Wage Garnishment
If you receive notice of a lawsuit or impending garnishment related to a debt, it is important to act quickly. Here are some steps to consider:
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Review the notice carefully – Make sure you understand what debt the garnishment is for and which creditor is taking action. Errors do happen.
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Contact the creditor – Discuss your situation and try to negotiate an alternative payment plan. Getting ahead of a court judgment stops the legal process.
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Seek legal help – Consult a lawyer experienced with debt collection defense. They can provide guidance tailored to your specific situation.
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Claim exemptions – Federal and state law grant exemptions that protect some wages or property from garnishment. An attorney can help you file for these protections.
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Defend against a judgment – With legal representation, you may be able to contest faulty lawsuits and prevent a judgment and wage garnishment.
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Ask the court to adjust garnishment terms – If facing extreme financial hardship, you can request the court reduce the amount being seized.
Can Social Security Benefits Be Garnished?
Social Security benefits have special protections when it comes to garnishment. Two important facts to know:
- Social Security benefits cannot be garnished to pay federal debt, like student loans or back taxes.
- For non-federal debt, only 15% of Social Security benefits can be garnished.
If your bank account contains direct deposited Social Security funds, the bank must protect two months’ worth of benefits from garnishment.
Beware of Threats and Harassment
Reputable collectors follow fair debt collection laws. Dishonest collectors may threaten wage garnishment they have no legal right to pursue.
Under the FDCPA, collectors cannot:
- Threaten actions they do not intend to take, like garnishment without a court order
- Make harassing or abusive calls
- Discuss debts with your employer except to verify employment
How to Avoid Wage Garnishment
The easiest way to avoid wage garnishment is to stay on top of your debts and maintain open communication with creditors. Some tips:
- Make at least minimum payments each month
- Speak with creditors directly if you anticipate missing payments
- Be proactive about arranging alternative payment plans
- Seek credit counseling if struggling with debt
- Keep records of all communication and payments
No one wants an unexpected garnishment eating into their paycheck. But being informed about the process and your rights is the best defense. This overview provides a starting point to facing wage garnishment properly and responsibly.
Non-Tax Debts Owed to Federal Agencies
The Debt Collection Improvement Act authorizes federal agencies or collection agencies under contract with them to garnish up to 15% of disposable earnings to repay defaulted debts owed to the U.S. government. As of December 20, 2018, the Higher Education Act authorizes the Department of Education’s guaranty agencies to garnish up to 15% of disposable earnings to repay defaulted federal student loans. Such withholding is also subject to the wage garnishment provisions of the CCPA, but not state garnishment laws. Unless the total of all garnishments exceeds the CCPA’s limits on garnishment, questions regarding such garnishments should be referred to the agency initiating the withholding action.
Limitations on the Amount of Earnings That May be Garnished for Child Support and Alimony
The wage garnishment provisions of the CCPA also limit the amount of earnings that may be garnished pursuant to court orders for child support or alimony. The garnishment law allows up to 50% of a worker’s disposable earnings to be garnished for these purposes if the worker is supporting another spouse or child, or up to 60% if the worker is not. An additional 5% may be garnished for support payments more than l2 weeks in arrears.
The CCPA defines earnings as compensation paid or payable for personal services, including wages, salaries, commissions, bonuses, and periodic payments from a pension or retirement program. Payments from an employment-based disability plan are also earnings.
Earnings may include payments received in lump sums, including:
- commissions;
- discretionary and nondiscretionary bonuses;
- productivity or performance bonuses;
- profit sharing;
- referral and sign-on bonuses;
- moving or relocation incentive payments;
- attendance, safety, and cash service awards;
- retroactive merit increases;
- payment for working during a holiday;
- workers’ compensation payments for wage replacement, whether paid periodically or in a lump sum;
- termination pay (e.g., payment of last wages, as well as any outstanding accrued benefits);
- severance pay; and,
- back and front pay payments from insurance settlements.
In determining whether certain lump-sum payments are earnings under the CCPA, the central inquiry is whether the employer paid the amount in question for the employee’s services. If the lump-sum payment is made in exchange for personal services rendered, then like payments received periodically, it will be subject to the CCPA’s garnishment limitations. Conversely, lump-sum payments that are unrelated to personal services rendered are not earnings under the CCPA. Similarly, payments and reimbursements to employees pursuant to an employer-provided educational assistance program under IRS Code 127 do not constitute earnings for purposes of the CCPA’s limitations on wage garnishment.
For employees who receive tips, the cash wages paid directly by the employer and the amount of any tip credit claimed by the employer under federal or state law are earnings for the purposes of the wage garnishment law. Tips received in excess of the tip credit amount or in excess of the wages paid directly by the employer (if no tip credit is claimed or allowed) are not earnings for purposes of the CCPA.
Can A Collection Agency Garnish My Wages? – Consumer Laws For You
FAQ
What is the most a debt collector can garnish?
What’s the worst a debt collector can do?
What happens if you never pay collections?
Can a debt collector garnish your wages without you knowing?
Legally speaking, a debt collector cannot garnish your wages without some form of notification. However, this doesn’t always translate to clear communication in practice. Here’s what typically happens: Before garnishing wages, a debt collector must first sue you in court and obtain a judgment.