Wage garnishment, also known as wage levy or wage attachment, is a creditor's final effort to collect a debt that a debtor refuses to pay. It is a court-authorized legal step requiring your employer to garnish or hold back a portion of your wages to pay your creditors. If you have a judgment against you for monies, it is important to know your rights concerning the amount of salary exempt from wage garnishment.
Law
According to the Federal Wage Garnishment Law, garnishment includes all compensation received from your employer -- wages, commissions, bonuses, earnings on a pension or retirement program, and vacation pay (tips are usually excluded). The amount taken is after deductions for federal, state and local taxes and any legally required employee retirement systems. The remaining amount is your disposable pay. Depending on the state where you live, the maximum amount garnished can range from 15 to 75 percent of your disposable income.
Considerations
Title III of the Consumer Credit Protection Act, limits the amount someone can garnish from your disposable pay. It also protects you firing by your employer if the garnishment is only for one debt. In many states, a garnishment or levy stays in effect until full payment of the debt. In community property states, there can be a levy on your spouse's wages as well.
Exemptions
Amounts exempt from garnishment include any court-ordered support you pay under Chapter 13 bankruptcy and any outstanding state or federal tax debts. The levied amount cannot exceed the lesser of two quantities: 25 percent of your disposable income or the total by which your disposable pay is more than 30 times the federal minimum wage -- $8 per hour as of October 2010. For example, if your earnings are less than $240 (30 X $8), there can be no levy on your wages. If your disposable income is more than $240 but less than $320 (40 X $8), there can be a levy on the amount above $240. For earnings above $320, a court can order garnishment to a maximum 25 percent.
IRS/State Tax Agency
The Internal Revenue Service cannot only garnish your wages for taxes owed. The IRS can seize and sell any real property in which you have a partial or full interest. A levy is usually the final step taken by the IRS after they have sent you a "Notice and Demand for Payment" that goes unheeded. After that, you will receive a "Final Notice of Intent to Levy." Your state can follow the same steps as the IRS to collect back taxes.
Creditors
According to individual state laws, creditors must give debtors ample time and notification of pending legal actions for debt collection. Once your credit account goes into default, the creditor can file a lawsuit if he is unable to collect, or he can sell the debt to a collection agency. If the collection company is unsuccessful, it might file a lawsuit to recover losses, and a court-ordered judgment may result for wage garnishment.
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