When you have a judgment issued against you, the court that issues the judgment has no authority to order the collection of the judgment. To ensure that he will receive payment, your creditor must go back to court. He has several options when he returns -- he can request a discovery of your assets and seize your property, garnish your wages or freeze your bank account. He cannot seize your federal taxes.
Wage Garnishment
If you have a judgment issued against you, and your creditor wants to enforce the judgment, he can request that the payments be garnished from your wages. If the judge grants the order, a notice of garnishment will be delivered to your employer, and he will be required to withhold the maximum amount allowed by your state's laws. He must comply or he will be charged with violating a court order. When you return to court, you can fight the garnishment or request a reduction.
Maximum Amount
When you are subject to a wage garnishment, not all of your income can be garnished. Federal law restricts the amount that can be garnished, as well as income that is exempt from garnishment. Some states have enacted laws regarding garnishments, and their laws differ from federal law. As long as the state law favors the employee more than the federal law, the state law prevails. Federal law states that if the garnishment is not for child support, federal taxes, state taxes or bankruptcy, a creditor can garnish no more than 25 percent of your disposable earnings, or the amount by which your disposable earnings exceed 30 times the federal minimum wage, whichever is less. For child support, up to 50 percent can be taken if you support another family, otherwise up to 60 percent is allowed.
Disposable Income
Disposable income is the amount of money you have left after deductions that are required by law. Federal law requires that you exempt certain income when you calculate the wage garnishment -- federal taxes; state taxes; local taxes; FICA taxes; other court ordered garnishments, and pension contributions that are required by law, for example railroad Retirement; required union dues; or any other deduction required by law. A wage garnishment will not prevent your federal taxes from being deducted and paid.
Federal Tax Refund
A common creditor cannot garnish your federal income tax refund. However, your federal tax refund can be garnished by your state or the federal government under certain circumstances. It can also be garnished for child support. If your state has an agreement with the Treasury Department, it can notify Treasury that your income taxes are uncollected and it will intercept your federal refund to pay your state taxes. If you owe money to federal agencies, such as the Department of Education for student loans, you can lose your federal tax refund without prior notice. The Treasury Department has the authority to garnish your federal refund without going to court.
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