If you have an unpaid debt, creditors may withhold part of your salary to pay it off. Find out what you need to know about wage garnishment to better prepare yourself.
Financial stress and anxiety affects a large part of the population and that was even before the pandemic, and debt is a major cause of these financial burdens. No matter how hard you try to avoid it, debt has a hidden way of undermining you.
Eventually, creditors will find a way to collect the money you owe, even getting a court order forcing your employer to withhold part of your wages; This is called wage garnishment and it can have serious repercussions on you and your financial well-being.
What is Wage Garnishment?
Wage garnishment is a legal process in which a portion of a person's wages is withheld and sent directly to creditors to whom the person owes money. Usually, a court order directs an employer to garnish an employee's wages to pay a debt. Wages can also be deducted directly from a person's bank account.
Your salary can be garnished for several reasons. Unpaid child support, back taxes, outstanding federal student loans, or consumer debt, such as credit card balances and medical bills, are common sources of wage garnishment. Your income will be garnished until the debt is paid or otherwise settled.
How does Wage Garnishment Work?
Wage garnishment is a very serious consequence and is usually used as a last resort, used only when someone is seriously behind in paying their debts. In order for a debtor's salary to be garnished, a creditor must usually obtain a court order stating that the debtor owes money and has not paid. But not all types of garnishment require a court order. For example, if the debt is an Internal Revenue Service (IRS) levy, no court order is required.
Once the court has approved the wage garnishment, an order will be issued requiring the debtor's employer to withhold a certain amount from wages, along with a specific letter and instructions to the employer. Usually, the employer must inform his employee that the wage garnishment is about to begin before he releases the payments. Wage garnishment will generally continue until the debts are fully paid.
According to the US Department of Labor, earnings subject to wage garnishment may include:
Bonuses
Commissions
Payments received in one settlement, such as severance pay, employment allowances or insurance settlements.
Regular payments from a pension, retirement or employment-related disability plan
Salaries
Wages
Wage garnishment procedure
A creditor begins the garnishment process by filing a wage garnishment petition form (Form DC/CV65) with the court.
After filing the application, the clerk or the judge signs the application and it becomes a Writ of Garnishment. The writ of garnishment orders the garnishee to keep all the property (usually the salary) of the debtor that the garnishee holds at the time of filing the Writ.
The creditor must pay the court fee to file for the request for garnishment on wages and may also incur costs to serve the garnishee of the writ of garnishment. The creditor must serve the garnishee the writ of garnishment via certified mail, restricted delivery, private procedure or sheriff/constable.
Interest also accrues for most judgments that a debtor owes a creditor, and legal fees and expenses may be added to the judgment. It's a good idea for the garnishee to contact both the lender and the debtor to ensure that the correct amount is paid to the lender.
The garnishee must submit a response to the Writ within 30 days of receiving the writ. In this, the writ must indicate whether the debtor is employed, his/her salary and any existing wage garnishment.
If the garnishee does not respond to the writ, the garnishee may be held in contempt of court and may receive a default judgment against the garnishee.
Once the writ is served, the garnishee must establish the debtor's "garnishable wages" amount for each payment period and will withhold the wages as stated in the writ until the decision is communicated, or until the court orders the garnishee to stop withholding. The garnishee does this by informing and distributing to the creditor, or the creditor’s representative, the total amount of the wages withheld within 15 days from the closing of the debtor's last payment period.
If the garnishee receives another garnishment, he must follow the same procedure, but must not pay a creditor later until the first garnishment has been fully discharged. Once the first deposit is paid in full, the next deposit will take effect. Therefore, in case of multiple tasks, the first tasks must be fully completed before the following tasks are paid.
Creditors who receive wage garnishment must allocate payments first to the interest accrued in the judgment, then against the principal amount of the judgment and finally against attorney fees, and court costs paid by the debtor. The garnishee must inform the debtor at each payment due date of the amount withheld and the methods for determining this amount. This information can be provided on the pay stub.
Termination
The garnishee must also notify the court and all parties if the debtor stops working or is fired. The garnishment expires 90 days after the end of the employment relationship, unless the debtor is re-employed by the garnishee during this period. In the event of multiple garnishment, each garnishment must be paid in full in the order in which it was served to the employer.
A garnishee cannot dismiss or discharge a debtor simply because the employee's salary is being garnished.
Federal law limits the amount of earnings that can be garnished to 25% of the debtor's disposable income. Disposable income is the amount of current income after legal deductions (e.g. federal or state taxes, social security, unemployment, health insurance). This rule does not necessarily apply to tax or alimony reimbursement.
Penalties
If the garnishee does not comply with the law, it can be sued for contempt of court, and legal and court costs can be charged.
If the creditor fails to comply with the law, the garnishment may be revoked, and legal fees and charges may apply.
Defense of garnishment
A garnishee can prevent garnishment by filing a petition with the court. A garnishee is not obligated to deliver any property not in his/her possession or to collect from the debtor/employee any tips paid directly to the employee by the employer's customers. A garnishee may also claim that the garnishment requested by the creditor be exempt from the debtor's income. The court can release all or part of the property if the judgment has been vacated, has expired or has been satisfied, if the property is exempt or if the creditor does not comply with the rules of the court.
Statement of Satisfaction
Once the full amount has been paid, the creditor must provide a written statement that the amount has been paid. Otherwise, the debtor may file a claim that the judgment has been satisfied. If the creditor does not comply with the legal provisions, the garnishment may be terminated and the creditor may be charged legal fees and costs.
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