Owing debts can make your income and assets vulnerable to debt collection. One drastic debt collection method is wage garnishment. Garnishment is essentially a legally binding payment plan that is automatically taken from your wages. This happens when an employer receives notification that wages must be garnished.
Garnished wages do not directly impact your credit score, but they can create discomfort at work by involving your employer in a personal matter. Once an employer receives a notice for garnishment, they are expected to comply.
What Is Wage Garnishment?
Wage garnishment is the withholding of wages toward debt collection or other money owed. The type of debts that can result in garnished wages include child support, alimony, tax debt, defaulted student loans, medical bills and court settlements. Creditors and others who may claim assets for repayment can obtain an income withholding order or wage garnishment order to legally divert wages for repayment.
Garnishment orders are sent as a written notice directly to an employer to inform them that wages must be withheld to fulfill a debt or financial obligation. A withholding order will indicate the responsible employee with an explanation and the garnishment amounts. The employer then has an obligation to send the court-ordered garnishment amount to the appropriate party each pay period until the debt is paid off.
Typically, an employer should verify the identity of the garnishee and ensure the withholding order is drawn against legal authority. Employers need to be aware that there are limits to the amount of money that can be garnished. This can get a bit complicated if there are multiple orders for a single employee.
Who Can Garnish Wages?
A withholding order will usually be the result of a court judgment. A common reason for garnished wages is child support, which happens after a support order is sent to an employer. This can also include alimony payments. Social Security income can also be garnished for child support and alimony.
Debts owed to a state or federal government can result in wage garnishment, while the IRS and state tax boards can garnish wages for unpaid taxes. Defaulted federal student loans can also be garnished from wages. These debts do not require a court order, unlike many other types of debt that can result in garnished wages. The IRS will require additional information to help an employer determine any exemptions.
Medical bills can result in garnished wages if there is a legal settlement for debt collection. Most states legally allow garnishment for creditors and debt collectors if they obtain a court order. Understand your rights under the FTC Fair Debt Collection Practices Act against abusive practices. It is federal law that a creditor cannot illegally threaten seizure or garnishment.
How Much Can Be Garnished?
Wages are garnished after taxes are deducted. The amount that can be garnished will also depend on an employee's weekly disposable earnings and the state or federal minimum wage. If an employee's income is too low, wage garnishment may not be an option. Certain court orders, tax debts, child support and alimony may not be held to the same limitations.
For child support and alimony, 50 percent of an employee’s disposable income can be garnished, and this amount can extend to 60 percent if the garnishee has no other dependents or spouse. Additionally, 5 percent extra can be included if payments are in arrears, according to the U.S. Department of Labor. Federal student loan debt can be garnished up to 15 percent of disposable income per StudentAid.gov. Most other debts are capped at 25 percent of disposable income.
If you are a debtor with a garnishment order or with wages currently being garnished, there are a couple of steps you can take to stop it. The first is to contact the creditor to work out an alternative payment plan. If that doesn’t work, consider filing bankruptcy to stop the wage garnishment – the viability of this option will depend on the debt, type of bankruptcy and state laws.
It’s a good idea to seek legal advice to discuss your options. If you can’t afford a lawyer, contact your state’s legal aid resources for pro bono advice.
Hashaw Elkins is a financial services and tax professional, as well as a project management consultant. She has led projects across multiple industries and sectors, ranging from the Fortune Global 500 to international nongovernmental organizations. Hashaw holds an MBA in Real Estate and an MSci in Project Management. She is further certified in organizational change management, diversity management, and cross-cultural mediation.