Creditors use wage garnishment to recover debts that you do not pay voluntarily. If your creditor wins a civil judgment against you via a lawsuit, it uses its civil judgment as grounds for requesting a wage garnishment order that it subsequently delivers to your employer. Once it receives the wage garnishment order, your employer complies by withholding the maximum amount of your wages permitted under the law and remitting the funds to the creditor as partial payment for the debt. This process continues until you either pay what you owe in full or lose your job.
Job Loss
Regardless of whether you lose your job via a layoff or quit your job voluntarily, a wage garnishment order terminates when your employment terminates. When you leave your job, you stop receiving wages, and a creditor cannot garnish something that does not exist. When your creditor can no longer garnish your wages, it may pursue other debt recovery options after you lose your job, such as placing a levy on your bank accounts or executing a lien against your home.
Unemployment Compensation
If you receive unemployment after being laid off, your unemployment pay is exempt from garnishment under federal law. While your creditor cannot intercept a portion of your unemployment compensation before you receive it, it can seize the payments from your bank account unless you specify to your bank and to the creditor that the payments represent exempt income and are not subject to garnishment. The U.S. Department of the Treasury notes that consumers must fill out a bank exemption claim notice in order to protect exempt funds from seizure.
Severance Pay
Unlike unemployment compensation, any severance pay you receive after your employer lays you off is considered wages and subject to garnishment. Federal garnishment laws allow commercial creditors, such as collection agencies and credit card companies, to seize up to 25 percent of your severance package. If your garnishment was for unpaid child support, your creditor can seize up to 65 percent of your severance package, depending on your current economic situation and whether or not your child support is more than 12 weeks in arrears.
Future Employment
When you find a new job, your creditor can garnish your wages with your new employer, but only if it returns to court and files for a new wage garnishment order and has the order served on your new employer. If the judgment permitting the creditor to garnish your wages expires in the time between being laid off from your old job and finding a new job, you sill owe the debt but the creditor can no longer seize your pay via a wage garnishment.
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