Obeying The Laws Regarding Wage Garnishments


Wage garnishments are common for creditors to collect on debts such as child support, back taxes, and student loans. However, there are rules that employers must follow when an employee receives a wage garnishment order.

Creditors may only take a percentage of an employee’s disposable income, which remains after mandatory deductions like taxes and Social Security are removed. These limits vary by state. For additional information on wage garnishments and related financial topics, visit LawyerNewsBlog.com.

The Creditor Must Have a Judgment

If you receive a judgment from a creditor, they may garnish or deduct money from your paycheck. It includes creditors who file lawsuits, debt collectors, banks, auto lenders, and government agencies. Only after obtaining a court-issued money judgment against you—a mandate that you pay the debt—can creditors legally have your earnings withheld. In most states, a creditor must have a money judgment before getting a wage garnishment. In most cases, a creditor must first sue you and then present evidence that you owe the debt before they can get a judgment against you.  When a creditor can garnish your wages, they must follow specific rules and procedures for the process. Typically, the creditor will send documentation to your employer (such as a wage garnishment or income execution). Your employer then deducts the appropriate amount from your paycheck and remits it to the creditor or legal authority. The amount that can be garnished is based on the number of deductions legally required by federal or state law. Federal, state, and social security taxes, health insurance, worker’s compensation insurance, pension benefits, 401(k) plan contributions, charitable giving, and other statutory withholdings may all be deducted from your pay.

The Creditor Must Have a Notice of Termination

Once a creditor obtains a judgment meeting the wage garnishment payroll requirements, it sends documentation to your employer. The documents direct your employer to withhold a certain percentage of each paycheck and send it to the creditor until your debt is paid off. Wage garnishment is different from other kinds of income executions, which are used to collect unpaid child or alimony payments and back taxes. Those types of debts are considered public debts. On the other hand, private debts include medical bills, credit card debt, bank loans and student loans.

The federal Consumer Credit Protection Act (CCPA) establishes guidelines for wage garnishment. It also limits the amount that can be taken from an employee’s pay and prohibits employers from firing employees if their wages are garnished for a single debt. Employees can challenge a garnishment order by providing evidence of their financial hardship to the court. The instructions for challenging a garnishment will be in the notice they receive. The employee can also seek to modify the garnishment order or file for bankruptcy to eliminate the debt. Creditors and debt collectors are often willing to work out repayment plans with individuals, which may help avoid a garnishment. If you cannot agree with a creditor, consider seeking free help from a non-profit credit counselor.

The Creditor Must Have a Notice of Garnishment

The process for garnishing an employee’s wages differs from state to state, but generally, a creditor must have a judgment before beginning wage garnishment. The notice that the court issues must also include specific details, such as the maximum amount of the employee’s disposable income (gross income less permitted deductions like union dues and insurance premiums).

This calculation is typically based on the federal minimum wage. The maximum amount that can be withheld from an employee’s paycheck is capped at 25 percent of the disposable earnings or 30 times the applicable federal minimum wage, depending on the type of debt. The maximum deduction limit does not apply to debts that are considered public debts, such as past-due taxes, government student loans, or family debts, such as child support. The creditor will send this documentation to the employer, who must then withhold the specified amount from each paycheck until the debt is paid. Employees are generally notified of the garnishment by letter from the creditor or through a local sheriff’s office. They can dispute the debt with the court if they don’t believe it is valid. They can also consider seeking a debt relief solution such as a repayment plan or bankruptcy filing. Many debts, including unpaid student loans and medical bills, can be eliminated in bankruptcy.

The Creditor Must Have a Notice

When a debtor wants to garnish an employee’s wages, they must have a notice from the court. It can be a writ of garnishment, a garnishment summons or an income withholding order (also known as a tax levy). The purpose of the notice is to notify both the employer and the employee that the debtor has been granted this collection action. An employee who receives a garnishment notice must review it carefully. The notice will usually contain information on how much of their disposable earnings — the amount left after voluntary deductions such as insurance premiums and union dues are deducted from an employee’s paycheck — will be withheld. The maximum percentage of an employee’s disposable earnings that can be garnished to pay a debt depends on the type of debt and state law. If employees believe the garnishment is unwarranted or will cause financial hardship, they can challenge the order. The instructions on how to do this will be included in the garnishment notice they received. They must prove they will suffer financial hardship if the garnishment is not reversed or reduced.

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