Rules for Garnishing My Paycheck

Having your paycheck garnished by your creditors for unpaid debt can make you wonder if the proper rules are being followed and the correct amount is being taken out. Wage garnishment is regulated by federal and state government laws, and you should know what they allow before your employer gives any money to your creditors.

Consumer Credit Protection Act

Title III of the federal Consumer Credit Protection Act (CCPA) ensures that employers do not fire workers for the sole reason of having their wages garnished. The act also gives a limit to the total amount of garnishment that may be withheld from an employee's net income. The federal government prohibits more than 25 percent of an employee's take-home pay from being garnished. However, it allows for more of your paycheck to be garnished for bankruptcy, child support or income tax payments.

Notification

Your paycheck cannot be garnished by your creditors without your notification. When you don't pay your bills, you will receive collection calls and letters from the company that holds the debt, or from a third-party collection agency hired to make you pay the balance owed. If you do not respond or make arrangements for a payment plan with your creditors, they have the right to sue in court to try to collect by selling your assets or garnishing your wages. Do not ignore a court summonses; be aware of any judgments against you that will impact your income.

IRS Levy

If you owe back taxes to the Internal Revenue Service, your wages may be garnished without a court order. The IRS will send you a letter notifying you of the amount that you must pay to the government. If you do not settle your debt with the IRS, you will be sent a notice at least 30 days before your wages are garnished through a levy. If you do not have current contact information on file with the IRS, you may not receive the letters, and can have your paycheck garnished without advance knowledge. The levy will be released when your total tax debt has been satisfied.

Considerations

Although the federal government regulates how wages may be garnished, some states have passed consumer protection laws that differ. A few states, such as Texas and Pennsylvania, don't allow garnishments for debts that are not secured by an asset. Other states allow for up to 10 to 25 percent to be withheld for debt repayment. Also, keep in mind that filing bankruptcy may stop collection activities --- and your paycheck garnishment. Chapter 7 may eliminate the debt altogether, while Chapter 13 may allow you to set up a repayment plan that you can afford.