Wage garnishment can happen to anyone. An unexpected car repair or medical bill can cause you to fall behind in paying your debts. This article explores how wage garnishment works, what the federal limits and exemptions are, and how bankruptcy can help. If your wages are being garnished, the Consumer Credit Protection Act is a federal law that limits the amount of money that can be taken from your paycheck by your employer.
In this article, you will learn about wage garnishment and what rights you have when your employer gets a court order to take money out of your paycheck. Some, but not all, creditors must go to court to get a garnishment order to withhold part of your disposable earnings from your paycheck. Federal law limits how much money can be taken out of your paycheck and provides certain exemptions.
If you receive a summons (or order) from the court, don’t ignore it. If you fail to respond to the summons within a certain time frame, the creditor can ask the court to grant a default judgment against you. If your wages get garnished, you’ll have less money to pay your living expenses and may want to explore filing bankruptcy to stop the garnishment. This article explores how wage garnishment works, what the federal limits and exemptions are, and how bankruptcy can help.
1. Most, but Not All, Creditors Must File a Lawsuit Before They Can Garnish Your Wages
Generally, most creditors cannot access your paycheck or bank account without first going to court. The creditor must file paperwork in court stating that you owe a debt and that this debt has not been paid as agreed. For example, if you agreed to make a monthly payment on a personal loan but it has been six months since you made a payment, the lender may file a lawsuit to reclaim that money.
The paperwork you signed when you received the loan states that if you fail to pay the loan as agreed, the creditor can sue you. The paperwork usually also states that the creditor can ask the judge to have you pay the court costs and any attorney fees they incur for having to go to court to collect the money from you. If a creditor files a summons or complaint with the court, you will receive a copy. You should open this immediately because you have limited time to answer the summons. Typically, you’ll have 30 days to answer.
Ignoring the summons and not filing an answer will give the creditor the right to ask the court for a default judgment against you. This is like a team not showing up to play a basketball game. When this happens, the referee automatically declares the other team the winner by default because they showed up.
If you do answer the summons, the creditor will have to show the judge that you are not paying the money voluntarily, that you owe them the money, and how much you owe. You should double-check all information because sometimes creditors get the wrong person or incorrect amount of debt. It is important to get help to understand how to stop wage garnishment and your rights. This may vary by the type of debt you owe.
Though it’s less common, you should also be aware that some creditors can garnish your wages without getting a court order. The Department of Education and the IRS do not have to go to court to garnish your wages. It’s good to be aware of this if you owe federal student loans or back income taxes.
2. Federal Law Limits How Much Money Can Be Taken From Your Paycheck
If you go to court and the judge decides that you do owe the creditor money and that you are not paying voluntarily, the judge can order that your wages be garnished. Even if your wages are garnished, a creditor cannot take your entire paycheck because of limits set by federal law. The Consumer Credit Protection Act (CCPA) is a federal law that protects consumers from credit card companies, banks, and other lenders. Under this act, it is illegal for an employer to fire you because you have a wage garnishment order.
The CCPA also limits the amount that can be withheld from your disposable income in your paycheck. Disposable income is the money you have left in your paycheck after legally required deductions. Those deductions include federal, state, and local taxes; Social Security; Medicare; and state unemployment insurance tax.
The maximum amount that can be taken out of your paycheck is calculated based on a formula. It looks complicated, so we’ll walk through an example. The amount will be the lesser of:
25% of your disposable income, or
The amount by which your income exceeds 30 times the federal minimum wage (currently $7.25 an hour). This comes out to $217.50 a week.
For example, if the pay period is weekly and your disposable earnings are $217.50 ($7.25 hourly wage × 30) or less, there can be no withholding order. If your disposable earnings are more than $217.50 the amount above $217.50 can be withheld from your paycheck.
This is the federal standard, but some states have their own law. It is important to check your state’s wage garnishment law. If it differs from Title III of the CCPA, the law—whether federal or state—resulting in the lower amount of earnings being garnished must be used. Learn more about how much income can be garnished from your paycheck.
How Garnishment Works With Child Support and Alimony
If you owe payments for child support or alimony, the CCPA also limits the earnings that may be garnished. Federal law allows up to 60% of your disposable earnings to be garnished for child and spousal (alimony) payments. It is important to keep your child or spousal payments current while you are under a garnishment order. If you fall behind 12 weeks or more, an additional 5% can be withheld from your disposable earnings under federal law.
Once you receive a garnishment order, you may be able to file a claim of exemption with the court under federal or state law. A claim of exemption will stop some or all of your income from being garnished. It protects certain types of income. There are also state and federal exemptions on the type of income that can be garnished. Once the garnishment order is granted by the judge, you have a limited time to file your claim, so it is important to know what income is exempt from garnishment. Exemptions include:
Social Security or disability benefits
You can file a claim of exemption as the judgment debtor. This means you’re the person who owes money to a creditor that got a court judgment to withhold money from your disposable income.
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3. Bankruptcy Can Provide Debt Relief When Dealing With Wage Garnishment
Bankruptcy is a useful tool to deal with most types of wage garnishment. When you file bankruptcy, most debt collection activities must stop. This includes most, but not all, wage garnishments. Having your wages garnished reduces the amount of money you have to pay your living expenses like rent and utilities and can be very stressful. Bankruptcy may be a debt relief option to stop your wage garnishment. Upsolve has a free screening tool that can help you see if filing Chapter 7 bankruptcy is right for you and to help you file without a lawyer.
4. Certain Types of Debts Have Special Rules About Wage Garnishment
Some debts work differently than others when it comes to how your creditor can garnish your wages. For example, the IRS can garnish back taxes without going to court. But they are still required to notify you before the garnishment begins. Similarly, if you have defaulted on your federal student loans, the Department of Education can garnish your disposable income without a court judgment. You must receive notice before your employer withholds money from your paycheck to satisfy the garnishment. Child support and alimony (spousal support) garnishment payments won’t be affected if you file bankruptcy. This means you’ll still owe these after your bankruptcy case is finished. If you have concerns about your particular debts, a debt relief or bankruptcy attorney can assist you.
Wage garnishment can happen to anyone. An unexpected car repair or medical bill can cause you to fall behind in paying your debts. If your wages are being garnished, the Consumer Credit Protection Act is a federal law that limits the amount of money that can be taken from your paycheck by your employer. This law also prohibits an employer from firing you because you have a wage garnishment order.
Even though most creditors have to go to court to get a wage garnishment, this is not the case if you owe money for back federal taxes or federal student loans. There are also special rules if you have court-ordered payments like alimony or child support. You do have options to stop wage garnishment. A lawyer can help you figure out your best options as you move forward.