Understanding Credit Card Wage Garnishment

Credit cards provide convenience but they also have the potential to cause financial problems. Misfortune or a simple setback can cause anyone to miss a credit card payment. When delays happen, credit card companies tend to pounce. Debt collectors often use any collection method available to get paid. Missing payments can lower a credit score and affect your credit report. None of us want bad credit.  

Eventually, credit card companies will file a lawsuit. Many people don’t respond to these lawsuits, allowing their credit card issuers or a collection agency to obtain a default judgment with relative ease. After being awarded a default judgement, they can seek a garnishment order that allows them to take your disposable earnings. One option to stop garnishment involves filing a Chapter 7 bankruptcy case. 

What Is Wage Garnishment?

A judgment is a court order that gives a creditor, like a credit card company, the right to use certain legal debt collection tools to collect a debt. A judgment can lead to wage garnishments, bank levies, and seizures of property. A wage garnishment will allow creditors to take money from your paycheck. A bank levy will allow them to take money from your bank account. 

Once any creditor obtains a judgment against you, it may be able to use any of these debt collection tools to collect a debt as a judgment creditor. If a creditor gets a garnishment order, your employer’s payroll department has to withhold a certain amount of wages from your paycheck until the creditor is repaid. 

The federal government can garnish wages for unpaid back taxes or unpaid student loans. State agencies can garnish wages for unpaid alimony (spousal support) or child support. Neither of these creditors needs a garnishment order to take money out of your paycheck or bank account but private creditors do.

The power to garnish wages isn’t absolute, even with a court judgment. The Department of Labor limits how much money can be garnished from your wages. The money taken from your paycheck can’t be more than 25% of your take-home pay or the amount by which your income exceeds 30 times the minimum federal wage, which is currently $7.25 an hour, whichever is less.

What Has To Happen Before A Credit Card Company Can Garnish Wages? 

Wage garnishment won’t happen overnight. You will receive multiple contacts and notices from credit card companies - by the original issuer or a collection agency - before any wages are taken from your paycheck. 

Remember that a collector for any credit card debt has to file a lawsuit before it can garnish your wages or levy your bank account. You have a right to receive notice of any lawsuit. The law requires that you receive a summons and complaint when the case is filed. Never ignore a notice of any lawsuit. You can defend yourself in court, although it can be helpful to seek an attorney’s guidance. 

Despite the right to receive notice after a lawsuit is filed, you may not receive collection notices or phone calls from a debt collection company before a lawsuit is filed. Not every state requires this action before a creditor brings a lawsuit. Credit card companies might skip this step and move directly to filing a lawsuit in court.

Wage garnishment is one option that all creditors have to collect a judgment. These lawsuits can be costly for you since credit card issuers and their debt collectors can sue you to collect not only the unpaid principal but also the interest, late fees, and debt collection fees owed. A lawsuit can also negatively affect your credit score.

How To Prevent A Credit Card Company From Garnishing Your Wages?

If you think you’re in danger of having your wages garnished from your credit card company,  you do have options to protect your hard-earned money.

Consider signing up for a free credit counseling session with a nonprofit located near you. After completing a free evaluation of your financial situation, they’ll be able to make some recommendations on how to avoid wage garnishment. They may even be able to help you put together a repayment plan to offer to the party that’s suing you.

Also, you can challenge the garnishment. After the judgment is entered and the court orders a wage garnishment, you’ll receive a copy of the order at the same time it’s sent to your employer. Along with this notice, you’ll receive instructions on how to challenge the garnishment order in court. If you plan on doing this, make sure you act quickly because there are deadlines to meet. 

In addition to the federal limits, your income might also be protected through a federal or state exemption. Depending on state laws where you live, you may have as little as 5 business days to file a claim of exemption from the garnishment. Once the deadline has passed, the garnishee, usually your employer’s payroll company, will have no choice but to garnish a part of your paycheck. Bankruptcy is also an option. If you take all the necessary steps of the process, you can stop an active or pending wage garnishment.

Filing Chapter 7 Bankruptcy Can Stop Wage Garnishment

Bankruptcy can be an effective way to stop wage garnishment. If it makes sense for you to file for bankruptcy, know that once your case has been filed, wage garnishment must stop. Filing for bankruptcy to stop wage garnishment will work for almost anyone. 

If you’re buried in debt and can’t pay your basic living expenses, stopping garnishment may provide needed relief, even if that relief is temporary. If you’re struggling with more than one debt, and have multiple creditors filing lawsuits against you, bankruptcy can provide the fresh start that you may need to move forward. 

In that case, consider the pros and cons of Chapter 7 bankruptcy. The automatic stay will protect you from any collection efforts by the credit card issuer or collection agency. Both will receive notice from the bankruptcy court that you’re protected by the automatic stay. This will stop garnishment soon after you file. There are certain steps you’ll need to take to make sure the garnishment stops after filing bankruptcy (Chapter 7 or Chapter 13 bankruptcy). 

Bankruptcy can eliminate most court judgments, iIncluding judgments for unpaid credit card debts. Filing a bankruptcy case is one way of ending wage garnishment or bank levy permanently. If the debt subject to wage garnishment or bank levy is dischargeable, then it will be erased at the conclusion of a successful bankruptcy case. 

Other Options To Protect Your Paycheck

Filing Chapter 7 Bankruptcy isn’t the only option if your wages or bank account are being garnished. Keep in mind that there are other options that may be able to provide you with relief. 

For example, you can settle the debt to stop the garnishment. You can resolve a debt collection lawsuit with a debt settlement. You can make a payment plan with the creditor to pay off the amount of the debt with monthly payments or pay this amount in a lump-sum settlement. You may also consider debt consolidation to lessen some of the stress from struggling to make payments. 

You can fight the lawsuit. You may have a defense to the debt. And don’t forget that you may be able to use a federal or state exemption that allows you to protect money from garnishment. 

Let’s Summarize . . .

Wage garnishment involves a creditor taking your wages after being granted a court order. For this to happen, most creditors, with the exception of the government, must sue you first and win. After efforts to collect a credit card debt fail, a credit card issuer or its collection agency will eventually file a lawsuit. If you don’t respond, it can get a default judgment. Any judgment (including a default judgment) allows a creditor to get a garnishment order and garnish wages. 

One way to stop a garnishment is by filing a Chapter 7 bankruptcy case. As this isn’t the only option, speaking with a lawyer in your area can help you figure out your best options for moving forward. If you can’t afford a lawyer, Upsolve’s free app can help file on your own. We can also help you find an experienced lawyer who offers free consultations.