Can You Garnish a Co-signer?

When an individual takes out a loan or credit account, there is a possibly that he will default or fail to pay back the debt. Lenders look at the credit history of potential borrower to help determine the likelihood that they will fail to make payments. Risky borrowers may be able to convince lenders to give them money by getting co-signers to guarantee their loans. Lenders can potentially garnish the wages of co-signers if borrowers fail to pay their loans.

What is Loan Co-Signing?

Loan co-signing is a process where a third party agrees to accept responsibly for a debt if a primary borrower fails to pay it. Loan co-signers are typically people with good credit whom lenders trust to pay back debts if risky primary borrowers fail to pay. Co-signers are often parents or family members of young people with short credit histories. The U.S. Federal Trade Commission says that in some cases, lenders can attempt to collect debts from co-signers before trying to collect from the primary borrower.

Wage Garnishment

Wage garnishment is a way that creditors can attempt to collect on debts like loans, alimony, child support and overdue taxes. Under wage garnishment, an employer holds back a portion of an employee's pay and sends it to creditors until debts are satisfied. The Federal Trade Commission says that co-signers may be subject to garnishment if a lender wins a judgment against a co-signer in court.

Limitations on Garnishment

While garnishment reduces the amount of pay a debtor receives, there are limitations on the amount of money a lender can garnish. The U.S. Department of Labor states that the most a creditor can garnish in a workweek is the lesser of 25 percent of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage. Disposable earnings are wages that remain after accounting for certain legal deductions such as amounts paid toward state and local taxes, Social Security and unemployment insurance.

Considerations

Co-signers should consider the dangers of co-signing carefully before agreeing to guarantee a debt for someone else. According to the Federal Trade Commission, co-signers often end up paying for debts and lenders might even be able to take ownership of the co-signer's property to fulfill the debt.