If you default on any type of secured or unsecured debt, the creditor can garnish your wages for the unpaid balance on your account. Other circumstances that can lead to wage garnishments include unpaid federal and state back taxes, as well as court support orders for child or spousal support.
Unsecured Debt Default
When lenders do not use any type of property as collateral against a debt, the lender considers it unsecured debt. Credit cards, private student loans and personal loans fall into this category. The creditor will file a lawsuit against you for the amount you owe, plus any applicable court and legal fees. The creditor usually files this suit at a courthouse local to you. If a judge finds in favor of the creditor, who is the plaintiff in this case, garnishment of your wages will begin shortly thereafter. If the judge does not find in favor of the creditor, she dismisses the case and there is no wage garnishment.
Secured Debt Default
If you default on a secured debt, such as a car loan or any other loan secured by property, the creditor will repossess your property to sell at auction. Typically, you have a right of redemption after the creditor repossesses the property. To exercise this right, you must pay all the past-due payments plus repossession fees. If you don't exercise this right, the creditor sells the property at auction. If there is a balance remaining on your account after the creditor applies the auction proceeds, the creditor can garnish your wages for the remaining balance. The creditor must sue you, and the judge must find in favor of the creditor before the garnishment can begin.
Back Taxes and Support Orders
If you have unpaid taxes from previous tax years, the IRS and your state can garnish your wages for the unpaid balance plus penalties and interest. Unlike creditors, the IRS does not have to sue you in court before the garnishment can begin. Instead, the IRS sends you a letter notifying you of the garnishment. The IRS will continue to garnish your wages until you pay off the entire balance of your taxes owed.
If you have a court order to pay child and spousal support and you are behind on your payments, the state may garnish your wages.
Federal Student Loan Default
The U.S. Department of Education insures federal student loans such as Perkins and Stafford loans. If you default on a federally insured student loan, the Department of Education does not have to file suit against you before a garnishment can begin. However, the department will send you a notification of the default and its intentions to garnish your wages. On this notice, they list the contact number for the Administrative Wage Garnishment or AWG department. You can call this number and work out an installment-payment arrangement to prevent the wage garnishment.
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