Can Collection Agencies Garnish Your Wages If You Are Self-Employed?

Collection agencies can sue self-employed individuals for unpaid debts but may find it difficult to collect on the debt through wage garnishments because self-employed people do not earn regular wages. However, if you are self-employed, collection agencies can garnish your income through other methods, including garnishing your income tax refunds and placing a levy against your checking and savings accounts.

Self-Employment Income

The confusion as to whether a collection agency can garnish your wages if you are self-employed seems to begin with the difference between wages and income. If a company pays you money for your services but does not withhold any taxes, you are not technically an employee, according to the IRS. The IRS also does not consider the money you earn as wages, but as income. This income is not subject to garnishment. If you receive regular wages from an employer in addition to self-employment income, a collection agency can garnish your regular wages, but not your self-employment income.

About Wage Garnishments

For regular employee's, once a judge finds in favor of the collection agency's Request and Writ for Garnishment, the collection agency sends the employer a notice to begin withholding. Under Title III of the Credit Consumer Protection Act, the employer is legally bound to begin withholding a portion of the employee's wages. Incomes earned through self-employment activities are not regular wages and are therefore not subject to or protected by wage garnishment laws. This forces collection agencies to seek different methods of collecting the debt other than wage garnishment.

Other Garnishment Methods

Collection agencies can file a Writ for Garnishment (Income Tax Refund/Credit) at your local county courthouse to seize your state tax refund. In this case, your state will intercept your tax refund to pay the garnishment amount. They can also file a Writ of Execution or Attachment to levy your bank accounts. If a judge approves the Writ, the collection agency can take money without notice from your checking and savings accounts.

Warnings

Just because a collection agency garnishes your state income tax refund or levies your bank accounts once, it does not mean they will not continue to take such collection actions in the future. If the funds are not enough to pay off the outstanding debt the first time, the collection agency can continue to file new Writs for garnishment and execution and attachment until the balance on your outstanding debt is zero.