Can Self Employment Income Be Garnisheed for a Collection in Colorado?

In most cases, getting behind on your credit card or installment loan payments results in phone calls and letters from your creditors or collection agencies. However, if you do not work out an agreement to catch up on your debt payments, a creditor may take steps to garnishee your earnings. Garnishment is the process of taking a portion of your wages out of your paycheck to apply toward your debt. Colorado permits garnishment of both traditional employer wages and self-employment earnings.

Procedure

A creditor seeking garnishment of self-employment income must first obtain a legal judgment against you for the debt you owe. It files a lawsuit in the county where you live, and if you cannot show you already paid the debt or raise another valid defense, the court typically grants a judgment in the creditor's favor. After the creditor has won a judgment, it may apply for a writ of garnishment, which allows it to take part of your earnings.

Finding Your Earnings

Judgment creditors typically have little difficulty finding out where a traditional employee works for the purpose of carrying out garnishment proceedings. However, the process of finding a self-employed debtor's income sources can be difficult, particularly if the person works on a freelance basis. To streamline the process and keep you from hiding income, a judgment creditor may apply to the court for a debtor examination under Rule 69 of the Colorado Civil Code. In a debtor examination, you must appear in court with documentation of your earnings and assets, and answer financial questions posed by the creditor.

Garnishment Limits

Colorado follows federal law regarding the amounts a judgment creditor can garnishee from your earnings, whether derived from traditional employment or self-employment. A creditor can only take 25 percent of your earnings after taxes. The "after tax" provision can be a disadvantage for a self-employed debtor -- since self-employment income is typically not taxed up front, a creditor can take 25 percent of your entire earnings, even though you will have to pay taxes on garnisheed earnings at the end of the tax period.

Time Limits

Under Colorado law, a judgment creditor can garnishee your earnings for six years after the date of judgment. However, before the expiration of the six-year period, the creditor may apply to the court for a renewal of the judgment if you have not satisfied the debt. A renewal gives the creditor an additional six years to garnishee your self-employment earnings.