I paid off my wage garnishment, now what?
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Paying off a wage garnishment is a great accomplishment. Once all the debts are paid, though, the money that has been automatically taken from your paycheck doesn't always stop being taken from your paycheck. This article will give you advice on how to make sure your money is no longer being withheld and sent to your creditors as well as information about how you can rebuild your credit after a wage garnishment and how to avoid having your funds garnished in the future.
Written by the Upsolve Team. Legally reviewed by Attorney Andrea Wimmer
Updated August 12, 2021
Wage garnishment can happen to anyone. You might find yourself with unexpected medical bills or car repairs that have a huge impact on your financial situation and your ability to pay your debt. If you default on your debts, your creditors can take you to court and get an order for a wage garnishment, which allows them to withhold money from your paycheck or bank account. Once all the debts are paid, you should speak with your employer or check your bank account to make sure money is no longer being withheld and sent to your creditors.
This article will give you information about how you can rebuild your credit after a wage garnishment and how to avoid having your funds garnished in the future.
What Is a Wage Garnishment and When Does it Happen?
Wage garnishment is a tool creditors use to collect unpaid debt. In most cases, wage garnishment happens only after a creditor goes to court to try to collect the debt. The legal paperwork you signed when you got the loan or credit card allows creditors to go to court and get a judgment if you default on your payments. Once the creditor receives a judgment, they are referred to as a judgment creditor.
In some states, the initial judgment includes a writ of garnishment. In other states, the wage garnishment law requires the creditor to go through a post-judgment process to obtain a writ of garnishment. The writ of garnishment allows the judgment creditor to seize your property to pay the debt. The property may be money taken from your paycheck or bank account.
You will receive a summons or legal document if your creditor goes to court. If you receive a summons, don’t ignore it! The summons will give the creditor’s story about the debt. You should answer the summons so you can give your side of the story about the debt. It’s also important to answer because sometimes the paperwork has incorrect information, including the amount of money you owe. If you fail to answer the summons, you make it easier for the creditor to get a judgment against you and withhold money from your disposable earnings.
A creditor who succeeds in getting a judgment against you can send the garnishment order to your employer. Your employer will withhold money from your paycheck and send it directly to the court or the creditor, depending on the order. Some creditors use the garnishment order to take money directly from your bank account through a process known as a bank levy.
Some types of income are exempt from being garnished. If this applies to you, you can file paperwork with the court known as a claim of exemption or wage garnishment exemption. This exemption protects certain property or money from being garnished because of federal and state law. Once your creditor has a garnishment order, some states give you as few as five days to file the claim for exemption. So it’s important to act quickly!
These exemptions or protections exist because you still need money for living expenses even if your creditor has a garnishment order. Some or all of your income may be exempt. For example, if all of your income is from disability benefits such as Social Security, then the garnishment stops. Other types of income exempt from a wage garnishment order are Supplemental Security Income (SSI benefits), unemployment benefits, and workers’ compensation benefits.
There are some creditors, including the federal government, who can skip court and directly withhold money from your paycheck. The Department of Education and the IRS can garnish your wages without going to court if you stop paying your federal student loan or have unpaid income taxes. If you owe back state taxes, your state tax collection agency can also skip going to court to garnish your wages. The federal government and state collection agency have to give you notice before they garnish your wages.
Limitations on Income Garnished
Whether your creditor goes to court or not, the Consumer Credit Protection Act (CCPA) provides protections for consumers who owe money to banks, credit card companies, and other lenders. Title III of this federal law limits the amount of money that can be garnished from an employee’s wages and provides other protections to consumers. The provisions of Title III fall under the U.S. Department of Labor since they cover employees.
A major provision of the law states that if you have even one wage garnishment, your employer can’t fire you. Title III of the CCPA also states that most creditors can only receive the lesser of 25% of your paycheck or the amount by which your weekly income exceeds 30 times the federal minimum wage of $7.25 per hour. The amount that is withheld from your paycheck will depend on your pay period. If you are paid bi-weekly, the amount withheld from your disposable earnings will be more than if your pay period is weekly.
Protecting Yourself After You Pay Off a Wage Garnishment
Paying off a debt where your wages have been garnished is no small feat. Since garnishment reduces the amount of money you have in your paycheck or bank account, it is important that once you pay off the debt under the order, it is recognized by the creditor, your employer, or the bank. The creditor should notify your employer when the debt is repaid and you should start receiving your regular paycheck again.
If this does not happen and money is still being withheld from your paycheck, then you should make sure the creditor notifies the employer. You can check with your company’s payroll department and ask if they have received notification from the creditor or court that the wage garnishment should stop.
If your bank account was garnished, you have to make sure the money in your account stops being levied once the debt is repaid. So, it is important to check your bank account regularly during any garnishment process. You may need to check with the bank to see if they have received notice from the creditor that the debt has been repaid and that the garnishment is over. If you find that money has been taken out of your bank account that was exempt or protected like Social Security, disability benefits, or unemployment income, you may have to go to court to get this money back.
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Rebuild Your Credit
The credit bureaus don’t report wage garnishments on credit reports. But starting in 2017, any loans that are not paid as agreed and have gone into default can hurt your credit score. This can affect your ability to get a home or car loan in the future. The good news is that you can rebuild and repair your credit if your score is low because of past unpaid debt.
First, get familiar with what goes into a credit score. Once you have this information, you can make a plan to get a higher credit score by taking out new loans you can pay in full. As older debts drop off your credit history, your credit score will increase along with your creditworthiness.
Avoiding Wage Garnishment in the Future
If you’re worried about getting into another wage garnishment situation in the future, there are some steps you can take:
Reach out to creditors early about possible payment options when you know you can’t pay a debt in full.
Talk to your creditors about your financial situation to see if they are willing to schedule payment options or lower your payment amount.
Look at refinancing certain debts with lower monthly payments, although this could extend the length of your loan.
Seek help from a non-profit credit counseling agency.
A credit counseling agency can help you make arrangements with your creditors to make a lump sum payment to pay all your debts. They can also help you set up a payment plan with your creditors. Choosing debt settlement or setting up a payment plan shows your creditors that you are working in good faith to pay off your consumer debts.
Bankruptcy is another debt relief tool that can help you avoid wage garnishment. A Chapter 13 bankruptcy allows you to manage all your debts through a 3-year or 5-year plan. A Chapter 7 bankruptcy allows you to discharge most of your debts, except child support payments. You can get help from a local debt relief lawyer who will review your debts and determine if bankruptcy is the right option for you. The attorney can also help you decide between filing a Chapter 7 versus a Chapter 13 bankruptcy plan based on your financial situation.
Use the Extra Money Wisely
After your wage garnishment is over, you might be tempted to go on a spending spree with the extra money back in your paycheck or bank account. Avoid this temptation since it could put you in more debt and start a cycle of facing garnishment again if you get behind in paying your creditors.
When you have extra money, review your household budget and typical expenses to see if this extra money can be used for repairs, medical or dental treatment, or other important things that you put on hold while paying off the garnishment. Also, develop the habit of putting any extra money in a savings account. This way you have a safety net in case of emergencies like an illness or job loss.
Paying off a wage garnishment is a great accomplishment. It can be scary to get a notice that your creditor is suing you to collect an unpaid debt. If you answer the summons, and the creditor still gets a judgment against you to garnish your wages, you’ll be living on a limited income for a while. Once the garnishment is paid, be sure to double-check that your paycheck is back to normal and/or that your bank account is no longer being levied. Ensure also that any exempted income you have isn’t being garnished in the process.
Though dealing with wage garnishment can be difficult, the good news is that once you pay off the garnishment, you can work on building healthier money habits and rebuild your financial life to avoid having your wages garnished again in the future.