Sunday, July 6, 2008

What Income Is Exempt From Michigan Garnishments?

While Michigan law provides creditors with tools to recoup debts from debtors using the garnishment process, it also provides debtors with protections against over-aggressive debt collection that could further damage the debtor's finances. Creditors may reclaim their debts through periodic garnishments -- deductions from wages -- or nonperiodic garnishments -- one-time seizures of property -- although state law places limitations on the types and, in some cases, the amount of funds that may be garnished.

Federal and State Benefits

    Michigan state law exempts many types of federal benefit programs designed to help retirees, the handicapped and the poor from garnishment proceedings. Social Security retirement benefits, and Social Security Supplemental Security Income benefits may not be garnished, nor may state-provided retirement benefits from the Michigan Retirement Act or U.S. Civil Service Retirement benefits. Benefits provided as part of the federal Aid to Families with Dependent Children, General Assistance Benefits and benefits provided by the Veterans Administration are also exempt from garnishment.

Savings

    Nonperiodic garnishments may allow a creditor to recoup his debt by accessing a debtor's financial holdings, although Michigan provides some limits to the types of funds that may be garnished. Most savings accounts from a savings and loan may be garnished, save for a $500 balance that must remain in the account. Because present-day debts shouldn't derail a debtor's retirement planning, funds in IRAs are exempt from garnishment, similar to protections for retirement benefits. Distributions from IRAs aren't exempt from garnishment, however.

Insurance Benefits

    Certain types of insurance proceeds lie beyond the reach of garnishments as well. Benefits provided from Michigan's worker's compensation program, both disability payments and medical costs, can't be garnished. Similarly, wage replacement benefits provided by the Michigan Unemployment Insurance Agency aren't a garnishable source of income. Neither the cash value of a life insurance policy nor the value of an annuity payable to a debtor's family may be garnished, although insurance payments from those policies may be eligible for garnishment in some cases.

Portion of Wages

    In most cases, a periodic garnishment of a workers' paycheck is acceptable, although Michigan places limits on the amount a creditor may receive each paycheck. A debtor may not claim more than 25 percent of a worker's disposable income -- defined as the portion remaining after a court-determined cost of living amount is exempted -- and periodic garnishments are only valid for 91 days, so creditors may need to secure a writ of garnishment more than once to recoup garnishments periodically. Workers who receive minimum wage may have a smaller portion of their paycheck garnished than the 25 percent allowed by law.

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