About Wage Garnishment and Collection

Most creditors will attempt to collect consumers' debts amicably via telephone calls and letters before proceeding to other collection methods. If an individual ignores a creditor's attempts to elicit payment from him on his overdue account, the creditor may request a wage garnishment order from the courts.

Facts

Before a court will grant a creditor the right to garnish an individual's wages, the creditor must file a lawsuit against the consumer. Either the court or the creditor, depending upon the state, will notify the consumer of the creditor's intention to sue. If the debtor does not acknowledge the lawsuit or submit a defense to the court, the court will grant the creditor a judgment. Unsecured creditors, such as collection agencies and credit card companies, must obtain a court judgment before they can garnish an individual's paycheck. According to the U.S. Department of the Treasury, however, some government agencies may garnish consumers' wages without first obtaining a legal judgment.

Significance

Once a creditor obtains a court order allowing it permission to seize payment for the debt from the debtor's paycheck, it must deliver a copy of the order via a writ of execution to the individual's employer. The employer will then direct a portion of the individual's paycheck each pay period to the creditor until the debt is satisfied or the debtor ceases to work for the employer. If an individual under a wage garnishment order switches employers, the creditor must find out where he works and request a new garnishment order from the court before garnishing his pay through the new employer.

Features

Title III of the Consumer Credit Protection Act limits the amount that an employer may withhold from an employee's paycheck when cooperating with a wage garnishment order. Creditors can only seize disposable earnings. An individual's disposable pay is the amount left over after taxes and other legally required deductions. A creditor may garnish either 25 percent of the individual's disposable earnings or any earnings each pay period that exceed the federal minimum wage when multiplied by 30. Up to 60 percent of a debtor's total wages may be garnished if the garnishment is a result of a child support order.

Effects

A wage garnishment order creates extra work for the debtor's employer since the employer must calculate the correct amount to withhold from the individual's paycheck each pay period, adjust the individual's paycheck and is responsible for submitting timely payments to the creditor. The employer may not fire the employee solely because he receives a wage garnishment. Subsequent wage garnishments against the employee, however, are cause for legal termination of employment.

Considerations

If the debtor's employer terminates him, he may receive unemployment which is exempt from garnishment. Other forms of income that are exempt from garnishment by a private company are Social Security benefits, child support payments, any form of welfare and tax returns. If the creditor garnishing the individual's paychecks is the federal government, however, his otherwise exempt benefits may be garnished.