Borrowing money can enable consumers to make purchases they might not be able to make otherwise. However, it can also lead to financial difficulties, especially if the borrower is unable to pay back the loan. When borrowers fail to make loan payments or default on loans, lenders can use a variety of methods to attempt to collect the funds they are owed, including wage garnishment. When your wages are garnished, your employer holds back some of your income and sends it to your creditors.
Wage Garnishment Basics
The U.S. Department of Labor states that wage garnishment occurs when employers are required to withhold money from an employee's pay due to a court order or other legal procedure. In other words, a creditor must win a court judgment against a debtor to garnish wages. In addition, the department states that Title III of the Consumer Credit Protection Act (CCPA) prevents employers from terminating workers who are subject to garnishment and limits the percentage of income that can be subject to wage garnishment. Title III applies to employers and workers who receive earnings for personal services such as wages, salaries, commissions and bonuses, but it does not typically include tips.
Wage Garnishment Limits
The U.S. Department of Labor states that the maximum amount a creditor can garnish from wages for any workweek is the lesser for 25 percent of your disposable earnings or the amount by which your weekly disposable earnings exceed 30 times the federal minimum wage. Because the federal minimum wage is $7.25 an hour as of July 2011, 30 times that amount, or $217.50 per week, is protected from wage garnishment. This limit applies no matter how many garnishment orders an employer receives for a worker. The amount creditors receive due to garnishment depends on the terms of the garnishment order made by the court. In addition, states may impose their own garnishment limits or prohibit garnishment. If state limits differ from federal limits, the lower limit takes precedence.
Disposable Income
Wage garnishment applies to "disposable earnings," which are earnings minus certain allowances. According to the U.S. Department of Labor, disposable earnings are earnings leftover after legally required deductions, such as income taxes, Social Security taxes, Medicare taxes and unemployment insurance, have been taken out.
Rules for Certain Types of Debt
While creditors such as credit card companies and banks can only garnish up to 25 percent of disposable earnings, garnishments that arise from other types of debt can result in harsher garnishments. The Department of Labor reports that up to 50 percent of disposable earnings can be garnished for child support owed, bankruptcy or federal or state taxes owed, and an additional 5 percent can be garnished for support payments that are at least 12 weeks past due.
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