How Does a Garnishment Affect a Cosigner?

If you've cosigned a loan or are considering cosigning, taking a moment to contemplate the potential consequences can save you a headache later on. As a cosigner, you are just as responsible for repaying a loan as the other signer. If the loan goes unpaid, you may face a debtor lawsuit and other potential negative consequences, such as wage garnishments. If you need legal advice about a garnishment as a co-signer, talk to an attorney in your area because garnishment laws differ among states.

Garnishment Process

A wage garnishment is a court-ordered payment your employer makes directly to either the court or to a creditor. The payment comes directly out of your paycheck and continues until the debt you owe gets paid back. Garnishments can only happen after a creditor has sued a debtor in court and won a judgment. The judgment is the court order stating how much the debtor owes and that the creditor is entitled to receive that money. A creditor can sue both the debtor and any co-signer to recover an unpaid debt.

Garnishment Order

Once a creditor decides to sue a borrower or a co-signer and wins in court, the lender can then garnish either or both persons' wages. However, a lender cannot garnish the co-signer's wages unless the creditor originally sued the co-signer. A creditor may, at its discretion, opt to sue only a borrower, or only a co-signer, or sue both at the same time. Either way, the lender can only garnish the co-signer's wages if the lender sued the co-signer on the defaulted debt.

Notice

While a co-signer can have her wages garnished, the creditor must make special provisions for this when the cosigner signs the loan. The federal Credit Practices Act requires that a lender must notify a co-signer of the potential liability the co-signer incurs when signing for the debt. The warning must include specific language and warn the co-signer of potential negative consequences, such as the default going on the co-signer's credit report and the potential for a creditor to sue the co-signer even if it does not sue the borrower.

Limits

All garnishments are subject to limitations. Federal law governs how much a person can have taken from her wages by a garnishment. The garnisher can only take up to 25 percent of the garnishee's disposable income, or 30 times the federal minimum wage, whichever amount is less. Disposable income means all the income the garnishee has after paying all taxes as well as Social Security, retirement and unemployment insurance payments.