Wage garnishment is a debt collection tactic that takes funds directly from the debtor's employer in the form of wages withheld from each paycheck. In most cases, the creditor must first win a lawsuit against the debtor before initiating a garnishment. Some types of debt, however, are treated differently. People who owe taxes or defaulted on their student loans may be subject to wage garnishment without a court order.
While wage garnishments are an effective debt collection tactic, they sometimes backfire on creditors. Once faced with such an aggressive measure, some debtors choose to file for bankruptcy, triggering the automatic stay against collection activity. The automatic stay stops most garnishment orders. After the bankruptcy is completed, the creditor may receive little or nothing and has no legal standing to collect the debt in the future.
How Garnishments Work
In a garnishment, a creditor legally compels an employer to deduct a percentage of an employee's paycheck and deliver these funds to the creditor. While federal law limits this percentage to 25 percent, some states restrict the garnishment percentage even further. In addition, states may further protect the debtors by allowing them to exempt all or part of their wages from garnishment.
Creditors usually have to obtain a court judgment before pursuing garnishment. Once the creditor has the judgment, he can begin garnishment proceedings. The process varies by state and county, but often works like this:
- The creditor visits the clerk of court's office and asks for permission to begin the garnishment process.
- Once the creditor has permission and the forms necessary to begin garnishment, the creditor must notify the debtor and serve the garnishment order to the debtor's employer. Laws for service vary by state: A creditor may be able to serve the papers directly. In some areas, however, only a sheriff or private detective can serve legal papers.
- The date on which the employer is obligated to start making deductions from the debtor's wages depends on state law. In some places, the debtor may have time to contest the garnishment or request a hardship exemption.
- The employer begins deducting the garnishment amount from paychecks and delivering it to the creditor. In some areas, the employer first sends the garnished wages to the sheriff's office. The sheriff then delivers the money to the creditor.
- The garnishment process can continue until the debt is satisfied, although some creditors may suspend garnishment if the debtor is willing to settle the debt or agree to a payment plan.
A creditor needs to know where a debtor works before the creditor can request a garnishment. Creditors who have won a judgment against the debtor can conduct a debtor's examination in court or by sending the debtor a questionnaire in the mail. Under penalty of perjury, the debtor must answer about his financial situation, including his place of employment.
Even in an administrative garnishment, however, the debtor has rights. The agency or lender must notify the debtor of its intention to begin garnishment. This notification also includes information on how she can request a hearing or file an appeal that can halt the garnishment process.