When a person owes a creditor, he faces the prospect of having his income garnished by the creditor. This means that the creditor siphons off a percentage of the debtor's income until the money that the debtor owes is paid off. Garnishment is more often applied to unsecured loans, as secured loans --- loans in which the debtor offers collateral --- can be paid off with the collateral. Private creditors cannot, however, garnish government benefits.
Garnishment
When a creditor seeks to garnish a person's income, he must first take the debtor to court and win a civil judgment against him. The creditor can then apply for and receive an order of garnishment, which he presents to the debtor's employer, who is legally required to honor it. A creditor cannot, however, garnish wages without the permission of a judge, even if the borrower agrees to the garnishment.
Exemptions
While creditors can legally garnish most types of income, federal law prevents private creditors from garnishing most types of federal benefits. This includes most types of Social Security payments, including SSI and SSDI. A judge will not issue an order of garnishment for seizing government benefits. Were one to be issued, the Social Security Administration, the federal agency that issues these benefits, would not comply with it. Even after the money is deposited in the debtor's account, it can't be seized.
Securing Loans
In some cases, a lender may attempt to have the borrower sign a document giving the lender the right to garnish the borrower's income, in the event that he fails to pay back the loan. While technically not a secured loan, this provides the lender a means of getting repaid if the loan falls into arrears. However, this document has no legal standing, as all forms of extrajudicial garnishment are illegal.
Government Debts
Although private creditors are not allowed to garnish government benefits, the government itself can. If a person takes out an unsecured loan from the government, such as a student loan, and fails to pay it back, the government can withhold a percentage of the person's federal benefits. However, the government will, as with a private creditor, have to seek a legal judgment against the individual before he is able to garnish federal benefits.
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