Wage garnishment is an order from the court to take a portion of your wages for the payment of a debt. A creditor usually sues you to obtain this type of judgment only as a last resort when you refuse to cooperate with the creditor or pay the debt. Charging off a successful wage garnishment as a financial loss only happens in a limited number of circumstances.
Definition of Charge Off
A charge off occurs when you fail to make the minimum payment on an open-ended account -- including a credit card -- for at least six months, according to My Credit Group, a financial information website. The creditor writes the debt off as a loss and sells your account to a collection agency that takes over attempting to get payment. The collection agency may file paperwork with the court to garnish your wages if the laws in your state allow garnishment for the particular debt in question.
Wage-Garnishment Orders
If the debt collection agency wins a credit judgment against you, the agency may contact your employer to begin removing money from your paycheck as part of the garnishment order. Each state has different laws on how long a garnishment order remains in place. The collection agency is only able to recoup the money you owe on the debt plus any applicable court fees and interest. It is illegal for the debt collection agency to use the garnishment order as a means of turning a profit on your debt.
Charge-Off Circumstances
Under normal circumstances, a debt collection agency or creditor has no need to write off a debt garnishment order. If you're employed and your employer is removing the pay from your check each pay period, then the creditor is receiving the appropriate funds as agreed by the court order. The creditor is satisfied, even though you may be quite disgruntled at having your wages garnished. Even if you're not currently employed, state law may provide a creditor or collection agency up to 10 years to collect on the debt. This gives the collection agency plenty of time to wait until you find gainful employment to utilize a garnishment order.
Garnishment-Exempt Funds
State and federal law usually limits a wage garnishment order to your income from working only. Money you receive from Social Security retirement, individual retirement account or pension plan is usually exempt from garnishment to pay a debt, unless the debt is for back taxes, child support or alimony. A debt collection agency or creditor looking to satisfy a garnishment for a credit card or medical bill may have no choice but to write the account off as a total loss if the only income you receive is from exempt funds.
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