Wage garnishment is a collection strategy that creditors can use to recover unpaid debt from you if you ignore your creditor or otherwise demonstrate unwillingness to repay your debt. Except in cases involving child support and federal and state taxes, this action typically follows a civil lawsuit and a judgment against you from a court in your state. Wage garnishment can have several effects on your personal finances.
Reduction in Income
If you earn more than 30 times the federal hourly minimum wage per week, wage garnishment can affect your finances by reducing your take-home pay. Federal law permits judgment creditors to take the portion of your post-tax earnings above this threshold, or 25 percent of your post-tax earnings, whichever is less. In cases involving unpaid taxes and child support, garnishment may reduce your income by up to 60 percent. However, some states provide more stringent restrictions on garnishment than the limitations imposed under federal law, and four states -- South Carolina, Texas, North Carolina and Pennsylvania -- prohibit wage garnishment for most types of debts.
Loss of Employment
Under federal law, an employer cannot fire you for incurring wage garnishment ordered by one creditor in a 12-month period. However, if two or more creditors order garnishment in the same 12-month period, the law does not protect your job. Because the employer's role in wage garnishment is time consuming and costly, your employer may discharge you if you incur multiple garnishments.
Disqualification From Future Employment
When you apply for a new job, either as a career change strategy or after being fired for multiple garnishments, your prospective employer will likely inquire about outstanding civil judgments. Some employers also run background checks, which can include public records and your credit file, before making a firm employment offer. If a judgment puts you at risk of garnishment, the prospective employer may not want to dedicate the expense and resources necessary to fulfilling a wage garnishment order. For this reason, the employer may decline to offer you a job.
Credit Damage
If you have fallen behind on debt payments, your credit has likely already suffered from delinquent account entries. However, the civil judgment that typically precedes wage garnishment can have a more dramatic impact on your credit score than a delinquency report. Credit bureaus routinely review public records to look for judgments, which they add to judgment debtors' credit files. A judgment entry on your credit report can severely limit your ability to obtain future credit for up to seven years.
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