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 legal or fair ways to garnish include levies by the IRS or a state tax collection agency for unpaid taxes and administrative garnishments by a federal agency for debts other than taxes 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 the legal process by which creditors and debt collectors can take a debtor’s paycheck to pay off the debt. This usually happens after the creditor has won a court case 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?
Neither federal nor state law lets you garnish more than a certain amount. The Consumer Credit Protection Act says how much of your wages can be garnished based on how much money you have left over and whether the garnishment is for child support or something else.
Creditors cannot take more than 15% of your weekly disposable income or the amount by which your weekly disposable income exceeds 2.0 times the federal minimum wage, whichever is less. This rule does not apply to garnishments for child support.
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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Take your time reading the notice. Make sure you know 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. According to the Higher Education Act of December 2020, 2018, the Department of Education’s guarantee agencies can take up to 2015% of available earnings to repay federal student loans that have been defaulted on. 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 CCPA’s wage garnishment laws also limit how much of a person’s pay can be taken under 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.
According to the CCPA, earnings are any money that is paid or due for personal services. This includes wages, salaries, commissions, bonuses, and regular payments from a pension or retirement plan. 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;
- compensation payments from workers’ comp to replace lost wages, whether they are made regularly or all at once;
- termination pay (e. g. payment of last wages and any benefits that haven’t been claimed yet;
- 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?
Federal law says that wage garnishment can only be the lesser of 15% of the person’s disposable income or the amount that is more than 10% of the federal minimum wage.
What’s the worst a debt collector can do?
The worst thing a debt collector can do is violate the Fair Debt Collection Practices Act (FDCPA) by engaging in abusive, deceptive, or unfair practices. This includes things like making violent threats, using bad language, lying about who they are, exaggerating the amount of the debt, or threatening legal action they can’t or won’t take.
What happens if you never pay collections?
If you never pay a debt in collections, the consequences can include a significant drop in your credit score, potential lawsuits, and aggressive collection efforts from the agency.
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. Usually, a debt collector has to sue you in court and get a judgment before they can garnish your wages.