This article will discuss the basics of wage garnishments, how wage garnishments are calculated, what income is exempt from garnishment, and how to stop a garnishment. Once you understand your options, you’ll be empowered to use whatever options apply best to your situation.
Written by Attorney John Coble.
Updated May 28, 2021
You’ve received a notice that your paycheck will be garnished. You’re probably wondering what you should do now. The good news is you have options. The quicker you learn what your options are, the quicker you can do something about the garnishment. The earlier you take action, the less money you will lose as a result of the garnishment. This article will discuss the basics of wage garnishments, how wage garnishments are calculated, what income is exempt from garnishment, and how to stop a garnishment. Once you understand your options, you’ll be empowered to use whatever options apply best to your situation.
Wage Garnishment Basics
Several things have to happen before your income can be garnished as repayment for overdue consumer debt like credit cards, medical bills, and bank loans. First, you have to fall behind on your payments. This may cause the creditor to sue you. You’ll be served a copy of the plaintiff’s complaint and a notice of the lawsuit from the court. This “notice” is the summons.
You will have a set amount of time to “answer” the creditor’s complaint. If you don't file your answer within the time limit, the creditor could file a motion for a default judgment. A default judgment is the legal equivalent of forfeiture in a sports match. For this reason, you should never ignore a summons. By not answering the complaint, you’ll give up important rights that you may not realize you have. If a default judgment is entered against you, your creditor will be empowered to use aggressive collections tools against you - including, but not limited to - garnishment of your income.
If you answer the lawsuit, but the court still decides against you, the creditor will also be granted a judgment against you. A default judgment and a judgment after trial have the same force of law. With either type of judgment, the creditor can begin debt collection actions such as wage garnishments, bank account garnishments, and placing a judgment lien on your property. With a wage garnishment, the next step is for the creditor to send the court order to your employer. Your employer must then withhold the garnishment from your wages or the employer will have to pay the garnishment amount from its own funds.
How Wage Garnishments Are Calculated
Title III of the Consumer Credit Protection Act (CCPA) at 15 U.S. Code § 1673, limits the amount of money that can be garnished from your paycheck. The general rule for consumer debt is that the maximum amount garnished per pay period can't be more than 25% of your disposable earnings. What are “disposable earnings" as defined by garnishment law? “Earnings” are any forms of wage-based compensation. This income includes wages, commissions, bonuses, severance pay, and more. “Disposable earnings” are what's left over after the legally required deductions are taken from your paycheck. These legally required deductions include items such as federal taxes, state taxes, the employee’s share of Social Security, Medicare, and state unemployment insurance. Where retirement plan contributions are legally required, it's also deducted for purposes of determining disposable income.
The 25% rule only applies if you make enough money. There's another rule to protect lower-income employees. If your weekly disposable income minus 30 times the federal minimum wage ($7.25 an hour in early 2021) is less than 25% of your disposable income, you’ll pay the lower amount.
A couple of examples should make this formula clear. For Example-1 below, the calculation will reflect the situation of someone who makes exactly the minimum wage and works 40 hours per week. In this example, the $45 of required deductions is a made-up number. This number is "made-up" because we don't know the number of dependents, marital status, or other factors. We must know such information to determine appropriate deductions in any “real world” approach. (Calculating deductions isn't the point of these examples, which is why a made-up number suffices here.) Also, in this example, all earnings are in the form of wages. There are no commissions, bonuses, or other forms of compensation.
|Gross Wages per Week||290.00|
|30 times $7.25||217.50|
|Total Legally Required Deductions||45.00|
|Net Wages (290-45)||245.00|
|Maximum Garnishment under 25% Rule||61.25|
|Garnishment under 30 times Min Wage Rule||27.50|
|Maximum Allowed Garnishment||27.50|
In this example, 25% of the disposable earnings of $245.00 is $61.25. But, $245.00 minus 30 times the minimum wage (217.50) is $27.50. Since $27.50 is less than $61.25, the most that can be garnished from this individual’s income is $27.50 per week.
In Example-2 below, everything is the same as Example-1 except the employee makes twice the minimum wage (2 X 7.25 = $14.50 per hour). To make the deductions more realistic, they're also doubled from $45.00 per week to $90.00 per week.
|Gross Wages per Week||580.00|
|30 times $7.25||217.50|
|Total Legally Required Deductions||90.00|
|Net Wages (290-45)||490.00|
|Maximum Garnishment under 25% Rule||122.50|
|Garnishment under 30 times Min Wage Rule||272.50|
|Maximum Allowed Garnishment||122.50|
In Example 2, 25% of disposable earnings ($490.00) is $122.50, and disposable earnings ($490.00) minus 30 times the minimum wage of 7.25 per hour (217.50) is $272.50. Since $122.50 is less than $272.50 the most that can be garnished from this individual’s income is $122.50.
These limitations don’t apply to some government creditors and domestic situations. Domestic support orders (child support payments or alimony) can result in garnishment of up to 65% of your disposable earnings. IRS garnishments for unpaid taxes are also not subject to these limitations. Bankruptcy payroll deduction orders aren’t subject to these limitations either. There's a reason that bankruptcy courts and taxing authorities aren't subject to this law. They have their own guidelines to prevent undue hardship.
Money That Can’t Be Garnished
There are federal exemptions for some federal benefits. For example, exemptions apply to Social Security payments, SSI benefits, disability benefits, VA benefits, and federal student assistance. State law exemptions may also exempt some income. Unemployment compensation and worker's compensation are examples of income states frequently treat as exempt for the purposes of consumer debt garnishment.
While these exempt income sources can't be directly garnished, they can be temporarily garnished once they hit your bank account. A garnishment of the money in your bank account is called a bank account levy. If your exempt funds are kept in a separate account from nonexempt funds, it's much easier to get the exempt funds back if garnished. You may have to go to court to get your money back. If your exempt and nonexempt funds are commingled in one account, it's more difficult to prove which funds are exempt to the satisfaction of a court. This is a costly and time-consuming process. These days, you can open internet checking accounts that don’t charge fees. Most exempt fund sources will pay you by direct deposit and these internet banks are happy to take your direct deposit. Opening separate accounts to keep your exempt income safe is an easy process - you just have to take some time to get it done.
If you aren't using direct deposit for your exempt benefits from federal government agencies, you should. Direct deposit can help you avoid garnishment of your protected income, even if your protected income is commingled with other funds. Under 31 CFR 212 of the federal regulations, when a bank receives a court order to garnish one of their customer's accounts, they must look back at the last 2 months of transactions to see if any federally exempt benefits were deposited into the account. If there has been such a deposit within the last 2 months, the bank must calculate the exempt amount itself and may not send exempt funds to the creditor. But, if you receive a paper check in the mail, the bank is not required to follow this rule.
If you don't have a bank account, many government agencies - such as the Social Security Administration - may send you a prepaid debit card. The agency will deposit money on this card instead of sending you a check. This is another way to protect your benefits. The Consumer Finance Protection Bureau provides information on which agencies provide these cards.
Stopping Wage Garnishment
It's better to resolve an issue with a creditor before the garnishment stage is reached. Usually, you'll get a better settlement earlier in a case than after a garnishment has been issued. Even if you have lost in court, you can still stop a garnishment by filing for bankruptcy. Bankruptcy can halt a garnishment even after the garnishment has started.
Consumers can file either Chapter 7 or Chapter 13 bankruptcies. A Chapter 7 bankruptcy allows for the liquidation of your nonexempt assets to pay off your creditors. Since very few individuals eligible to file for Chapter 7 bankruptcy relief have many nonexempt assets, most filers lose nothing but their debt.
Not everyone is eligible to file for Chapter 7 bankruptcy. Also, some people have debts like back taxes and child support arrears that aren't dischargeable in a Chapter 7 bankruptcy. For these people, filing for Chapter 13 bankruptcy may be a better option. A Chapter 13 bankruptcy uses a 3-5 year payment plan to resolve your debts - often for pennies on the dollar.
For a simple straightforward Chapter 7 bankruptcy, Upsolve provides a free tool that can help you file your own bankruptcy case. This approach can save you a lot of money on attorney's fees. For more complicated Chapter 7 bankruptcies and all Chapter 13 bankruptcies, you'll need the help of an attorney. Upsolve can help you find an experienced attorney in your area.
For consumer (non-government) creditors to garnish you, they must get a judgment against you. To get a judgment, the creditor must sue you. You can attempt to prevent a garnishment before or after you have been sued. Realize that when the court issues a garnishment order or even after the creditor starts garnishing your paycheck, this process can still be stopped. In cases where the garnishment stays in effect, there are federal laws to protect you from the creditor taking too much. For example, with consumer debt, you can’t have more than 25% of your disposable earnings garnished. Some income, like Social Security benefits, can’t be garnished at all.