How to Make a Settlement With Creditors When Your Wages Are Being Garnished

Overwhelming consumer debt affects many Americans. The consumer culture that thrives in the U.S. also causes problems for those who struggle with fiscal discipline. There are various stages of debt collection. It starts with 30-, 60- and 90-day delinquencies with an original creditor. After an account is more than 120 days overdue, accounts are often transferred to collection agencies. If these companies cannot collect debts, they bring the debt to court and acquire a judgment against you. After this, creditors can garnish your wages. Fortunately, if you take swift action, you can negotiate a settlement.

Instructions

1

Contact your employer to make sure that your wages are in fact being garnished. Creditors with valid judgments can garnish up to 25 percent of your "disposable" earnings. These are any funds after all other paycheck deductions (retirement accounts, health insurance) and taxes. Your lender will likely have the contact information for the collection agency garnishing your wages.

2

Calculate your debt-to-income ratio (DIR). For the purposes of this calculation, pretend your wages are not being garnished. To find your DIR, divide the sum of all monthly expenses by your total gross monthly income (without the garnishment). Most creditors will not settle unless your DIR is higher than 50 percent.

3

Calculate how much you can reasonably pay on a settlement agreement. Be reasonable, but not hasty. You must make sure the monthly payment leaves room for your food budget, housing budget and all other necessary expenses (gas, electric, water).

4

Log on to all of your other accounts--bank accounts, retirement accounts, investments. Calculate how much you can afford to spend on a one-time payment. Most creditors will not accept a settlement unless you submit a good faith payment showing your commitment to repayment.

5

Contact the collection agency and open the negotiations. Ask for a 50 percent settlement. This is a drastic cut to the outstanding account, and you will not likely get the agency to agree, but if you can settle on an amount that is 75 percent of the original balance, you can call that a win.

6

Ask the collection agency for the settlement agreement in writing. Review this document with a trusted adviser, such as your family accountant or attorney. Make sure the agreement includes an agreement to stop the wage garnishment. Send the signed agreement back with your one-time payment.