Creditors usually use garnishment as a last resort to collect debts. It's a process by which a creditor---a credit card company, for example---files a lawsuit against a debtor and secures a judgment, after which a percentage of a debtor's earnings are deducted from his paycheck and paid to the creditor. This wage garnishment process---sometimes called an attachment---is the most used form of garnishment. Property garnishments, such as car repossessions, also exist, but usually are handled through lien proceedings. Each state has its own garnishment laws, although federal garnishment regulations supersede state laws.
When are Wages Garnished?
There's no hard and fast rule that triggers a company or the government to start garnishment proceedings. No set amount of debt or the passing of a certain number of days automatically kicks off a garnishment. The same debt that causes garnishment for one person may not be the death knell for you. Maybe you've got a long-standing relationship with a creditor and have kept in touch during a financial downturn in your life. You may be able to work things out short of garnishment, whereas another person who simply stops paying his bill will be a target for garnishment. Seriously overdue debts---three months is typical---are candidates for garnishment. The larger and more delinquent the debt, the more likely garnishment becomes. One thing is certain: Creditors will notify you by mail, phone, e-mail or all three methods when your account becomes delinquent. They want their money and would rather avoid court proceedings. Even the IRS will attempt to contact you about delinquent taxes in an effort to collect debts before garnishing your wages---which they can do without receiving a court judgment.
Who can Garnish Property?
Any legal creditor or debt-collection company can sue you for garnishment of wages. The federal government can garnish your wages without receiving a court judgment against you and without informing you of the garnishment action. You'll simply notice money missing from your paycheck. This occurs frequently when people owe back taxes. State governments can garnish your wages without notice for overdue alimony and child support payments. Credit card companies, utilities, retailers, car-repair shops---any legitimate business can bring a garnishment suit. Car dealers may even repossess your car and sell it, then sue for garnishment based on the difference you still owe.
What can be Garnished?
Property can be garnished, such as houses or cars, but these situations normally are handled through liens or foreclosures. Money, your paycheck in particular, is the typical target of garnishment proceedings. Bank accounts also can be garnished, typically by the government. "Earned income" is what can be legally garnished. There are, however, limits to the amounts that can be taken out of your check.
How does Garnishment Work?
Private businesses that sue you for garnishment must first receive a judgment stating the amount owed, including interest. A supplemental hearing is usually scheduled, at which you must appear to answer the judgment. If you don't appear, a default judgment will be awarded to the creditor. If the court rules in favor of the creditor, the court may grant garnishment of your wages (if you can't make the payment in full). The creditor must notify you of garnishment authorization, the amount owed, any exemptions the creditor can't touch (such as social security benefits), and the steps for an appeal or challenge to the ruling.
Garnishment Limits
Federal law limits the amount that can be garnished to the lesser of 25 percent of your weekly disposal income or an amount equal to 30 times the federal minimum wage ($7.25 in 2010). For example, 30 x $7.25 = $217.50. If your weekly disposable income is higher than four times $217.50, the garnishment will be $217.50. If your income after taxes is less than $217.50, the garnishment will be 25 percent of your take-home pay ($50 on $200 disposable income). The IRS can seize nearly unlimited amounts of money and property to satisfy tax debts, governed only by guidelines that require them to leave you enough money to live. Garnishments totaling 30 to 70 percent of paychecks are not uncommon. The IRS also will garnish bank accounts (they like to receive bulk payments) and homes. State courts can garnish 50 percent for alimony and child support debts.
Exemptions
Some money is exempt from garnishment, although child support and alimony cases may not protect even these assets. Social security benefits, SSI and SSDI income, VA benefits, some unemployment benefits, certain public assistance income (food stamps and aid to children, for example), alimony and child support received, and some survivor and retirement benefits are among exempt income.
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