Will Consolidation Stop Wage Garnishment?

With the exception of some government debt, wage garnishment requires a court order. After a judgment against you, your employer receives a copy of the order directing him to withhold a determined amount from your paycheck to satisfy the debt. Excluding paying off the garnishment amount in full, the degree to which debt consolidation affects court ordered wage garnishment depends on the creditor's willingness to negotiate.

Debt consolidation loans do stop garnishment if the funds are used to pay the debt completely. Consolidation plans will not, however, stop court ordered wage garnishment automatically. Unemployment, income exemptions and bankruptcies also stop wage garnishment, but it may be temporary. While federal regulations restrict garnishment amounts to 25 percent of your disposable income for most consumer debt, government debt, back taxes and child or spousal support allow for greater garnishment amounts.

Debt consolidation loans involve transferring debt from one source to another by taking out a separate loan large enough to pay outstanding debts. With debt consolidation involving debt management or debt negotiation plans, an outside agency negotiates payment plans with creditors or offers a lump sum payment lower than the original amount owed. The lump sum offer comes from funds paid by you to the agency through a prearranged payment plan.

If you pay the debt in full through the courts, the courts release a judgment of garnishment against you. When you pay creditors directly, they must file a release of garnishment for satisfied debt. Read the payoff terms on your garnishment order to determine whether the debt is to be satisfied through payment to the courts or to the creditor. Additionally, creditors may file a release of garnishment with the courts if they agree to a payment plan or a reduced lump sum payment.

Excluding complete payment of debts owed, creditors do not have to agree to a consolidation plan. They may even decide that it's a greater risk since they would have to go through the courts again if you default on the repayment plan. Debt consolidation companies often wait to negotiate with creditors until they have amassed a sizable lump sum payment from you. Wage garnishment continues during this wait period subjecting you to payments to the consolidation company and wage garnishment simultaneously. Additionally, debt consolidation companies expect a fee for their services. Depending on contract terms, fees may increase your overall debt rather than reduce it.