If you default on your credit-card payment agreement, the creditor can take measures to collect the unpaid debt. In some cases, it sells the debt to a debt-collection agency or hires an attorney to collect it. Sometimes, the creditor uses a collection agency, which acts as its agent. A creditor or debt collector can garnish wages for a credit-card debt if the state that you are paid in allows wage garnishments. Federal and state laws restrict the amount that can be withheld from your wages.
Process
Most states allow wage garnishments for credit-card debts, but a few, such as Texas, South Carolina, North Carolina and Pennsylvania, do not. If the state you are paid in permits wage garnishments, to begin the garnishment process, the debt collector must first file a lawsuit against you. It has to obtain a judgment by winning the suit. Then it applies for a writ of garnishment with the same court to garnish your wages.
The court should serve you papers, notifying you of the lawsuit and the steps you can take to present your case to the judge. If you do nothing, most likely the judge will grant the debt collector a judgment against you. Depending on your state, you might be given a chance to satisfy the garnishment before it actually begins, or the paperwork might be sent immediately to your employer to verify that it has wages for you and to begin the withholding.
Federal Limit
Title III of the Consumer Credit Protection Act restricts the amount of pay an employer can withhold in one pay period for an ordinary wage garnishment, such as for a credit-card debt. Your employer can withhold up to the lesser of 25 percent of your disposable income or the total by which your disposable income is more than 30 times the federal minimum hourly wage -- $7.25 per hour at the time of publication. Your disposable income is your earnings after you subtract legally required deductions, such as payroll taxes.
State Limits
The state usually sets withholding limits, which in many cases mirror federal law. In some cases, it's less than federal law, in which case, your employer should use the smaller amount. A few states, such as Florida and Missouri, provide an exemption for employees with head-of-household filing status. For example, in Missouri, only 10 percent of your wages can be garnished for a credit-card debt if you are the supporter and head of your household.
Considerations
Depending on your state, your employer might be allowed to deduct a small fee, such as $2 or $3, for administering the wage garnishment. The state generally prohibits such a deduction if it causes your income to fall below the minimum wage. In many cases, the state allows a judgment to accrue interest until the date it's satisfied. If a wage garnishment is causing you financial hardship, contact the issuing agency for its procedures on filing a claim of exemption. A debt collector cannot obtain a judgment or a wage garnishment against you if the statute of limitations has expired.
Filing Chapter 7 bankruptcy enables you to get rid of credit-card debts and eliminate wage garnishments; the creditor cannot collect on the debt because it does not exist anymore. A Chapter 7 bankruptcy can stay on your credit report for 10 years.
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