How to Protect Yourself From Wage Garnishment

Wage garnishment can put a huge dent in your finances, often making it difficult for you to get by and make ends meet. Many people often find their wages attached after failing to pay back a debt, when the attachment could have been avoided. Wage attachments can go beyond a deduction from your paycheck and may result in liens against your personal property until the debt is satisfied. There are ways you can protect yourself from a wage garnishment, but you must take action immediately.

Instructions

1

Pay the debt off immediately. Coming up with the full amount owed and paying off the debt all at once can stop garnishment in its tracks.

2

Renegotiate payment terms with your creditor as soon as possible. Some creditors may be willing to settle for less than the full amount of the debt if you agree to pay in one lump sum. Paying off the debt before the creditor sues you and the court demands a wage garnishment can protect your assets.

3

Work with a debt consolidator and have your credit debt consolidated. Consolidating all of your debts requires financial assistance granted by a debt consolidation service. The service loans you the money needed to satisfy the debts, and you pay the service one monthly payment, which is often lower than the multiple payments you would make on each individual debt every month. In many cases, you must have a mid-range to high credit score to be considered for consolidation.

4

File for bankruptcy. When you file chapter 7 bankruptcy, your belongings are sold off and the money earned goes toward settlement of your debts. The remaining debt is then written off. Filing chapter 13 bankruptcy assigns your debt repayment to the court, which orders repayment terms you can afford based on your monthly earnings. Bankruptcy stops wage garnishment.

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How Do I Properly Pay a Debt Collector?

Regardless of what type of debt you owe, if you neglect to make regular payments to your creditor, it has the right to sell the debt to a debt collector to make up for the loss. Debt collectors buy debts that creditors cannot collect and then try to collect the debts themselves. A debt collector has a variety of tools in its arsenal to convince you to pay, such as credit damage, the threat of a lawsuit and incessant phone calls. If you decide to pay a debt collector, doing so properly can reduce damage to your credit score and make the debt disappear for good.

Instructions

1

Send a request to the debt collector in writing for debt validation as soon as you find out about the debt. The Fair Debt Collection Practices Act states that collection activity cannot commence until a consumer is given 30 days to dispute the debt's validity. It is important to request a validation to avoid falling victim to a collection scam.

2

Try to work out a debt settlement in exchange for the debt collector's agreement not to report the collection account to the credit bureaus.

3

Request that the forgiven balance of the debt not be sold to another debt collector. For example, if your debt is for $1,000 and the debt collector agrees to accept $700, you need assurance that the remaining $300 will not be sold.

4

Request that a zero-balance statement be mailed to you once the account is paid. If another collector attempts to collect the same debt, a zero-balance statement proves that you already paid what you owe.

5

Ask the debt collector to send you the terms of the agreement in writing before you make a payment. This compels the company to adhere to the agreement.

6

Make your payments on time and by money order. Do not allow a debt collector access to your bank account. If you were to miss a payment, the debt collector could try to garnishee the payment directly from your checking account.

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Will Debt Consolidation Programs Hurt My Credit Score?

Many consumers turn to debt consolidation programs after struggling with payments and drowning in debt. These consumers usually have a damaged credit score already, so getting help is the first priority, not saving the credit scores. If credit score is a concern for you, then it is best to carefully review each program and ask how the payments are reported to the credit agencies.

Debt Consolidation Agencies

Consolidation agents work to find the best options for consumers.

Consumers approaching debt consolidation first work with a counselor who reviews income, expenses and debt to create the best strategy. Reputable companies inform clients if debt consolidation is a viable option for them. The counselor will offer a plan to consolidate high interest credit card payments into one affordable lump sum. Debt consolidators negotiate lower interest rates on the client's behalf in return for a small fee taken from the client's payments. Credit card companies are happy to work with debt consolidators because they will recover most of the debt and can avoid writing it off.

Drawbacks of Using Debt Consolidators

Not all debt consolidation companies are reputable.

While most debt consolidation companies are reputable, there are some that may cause damage to your credit scores. Some companies have been known to take the monthly payments from the consumer without turning them over to the creditor. There is also a problem if they make the payments late. Both scenarios damage your credit even further. A few offer debt consolidation loans that have high interest rates, meaning the consumer will have a lower payment but end up paying more over time.

How Debt Consolidation Affects Credit Scores

Debt consolidation can affect your FICO score.

Debt consolidation helps improve credit ratings because payments are made on time and kept current. However, there can be a negative effect if the agency closes the credit card accounts. This is because the overall available credit will decrease, but the debt balance stays the same. The result is a credit portfolio that appears to be maxed out. Closing older accounts is not recommended because they have a longer credit history, and payment history accounts for 35 percent of the FICO score.

If the debt consolidation program negotiates a reduction of debt, there may be a statement on the account reflecting that the balance was paid at a reduced rate. This is viewed negatively by lenders due to the fact that the original balance was not paid in full.

Alternatives to Debt Consolidation

If your debt is not extreme, paying higher minimum payments could help pay down debt faster than using a debt consolidation agency. Debt consolidation companies negotiate with lenders and help pay down high interest debt first, which the average consumer can do himself. Debt counseling is also an alternative to consolidation. Debt counselors help consumers develop budgets and track spending habits to develop a debt reducing strategy.

Other Types of Debt Consolidation

Consumers can transfer credit card balances to lower interest cards to pay off accounts quickly. It is important to close the old accounts yourself, otherwise it will seem as if the credit card company closed the account and this reflects negatively on the credit report.

If there is equity in your home, obtaining a home equity loan to pay off debt carries many advantages such as low interest rates and a tax deduction. Using a home equity loan means no negative statements on the credit report. A "cash out" refinancing loan offers the same benefits.

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Maximum Garnishment of Wages

Wage garnishment is a process used by a creditor to collect on a debt. Once a court judgment is obtained, the creditor can go to court to obtain a wage assignment, or garnishment. A wage assignment summons is sent to your employer, who must complete the information and withhold the maximum amount of money allowed by law. This money is held until your next court appearance during which you can respond to the garnishment.

Federal Law

Wage garnishment regulations are contained in Title III of the Consumer Credit Protection Act and are administered by the Wage and Hour Division of the Department of Labor. The Act sets forth the maximum amount of wages that can be garnished for debt, judgments, tax levies and child support. It also provides protection for workers by prohibiting employers from terminating a worker specifically because their wages are garnished. The law protects anyone earning a wage and also includes garnishment protection for pensions and retirement programs.

Regulations

For a judgment, the law sets the amount that can be garnished at 25 percent of the earnings received that exceed 30 times the federal minimum wage in a weekly pay period. Earnings include wages, commission, salary, bonuses and other income, but exclude tips from garnishment. The garnishment amount is figured on your disposable income, which is your gross wages less legally required deductions such as federal and state taxes, required pension contributions, Social Security and unemployment insurance. Once your disposable income is determined, 30 times the minimum wage is deducted and the result is the earnings that can be garnished.

Restrictions

Title III is designed to ensure that you receive compensation for working despite a wage garnishment from a judgment. The minimum amount per week that you are entitled to earn is $217.50. If 25 percent of your disposable earnings would reduce your earnings to below the minimum entitlement, the full 25 percent cannot be taken. For example, if you earned $290 in a week, only the amount above $217.50 could be garnished. If your state's minimum wage is higher than the federal government's, the state wage is used for the calculation. If your state restricts garnishments to less than 25 percent, state law supersedes. Four states do not allow wage garnishments at all.

Other Garnishments and Levies

If you owe child support, up to 50 percent of your wages can be garnished if you support another household, and 60 percent can be taken if you do not support another household. If you are currently garnished for child support and a normal garnishment comes through, the 25 percent rule kicks in for the normal garnishment. If 25 percent of your disposable earnings are already taken, the normal garnishment fails. However, if you have a federal or state tax lien to contend with, or certain bankruptcy orders, the 25 percent rule does not apply.

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Pros & Cons of Low Interest Rates

When the economy stumbles, the government can use interest rates to spur growth. During a recession, the government may lower interest rates significantly to encourage businesses to borrow and consumers to spend more money. But lowering interest rates can have some negative consequences as well, including poor returns on savings.

Easier Borrowing

Lowering interest rates makes borrowing more affordable for both individuals and businesses. Individuals can take advantage of lower rates on credit cards and pay their debts more quickly. Businesses can take out loans to expand their offices and factories and hire more workers. That can in turn stimulate the economy and lead to more growth over time.

Housing Stimulus

Lower interest rates make houses more affordable by reducing the percentage of income buyers must dedicate to mortgage payments. That allows those buyers to purchase more expensive homes than they could otherwise afford, while allowing lower-income shoppers to purchase a first home. That can have a stimulative effect on the housing market, especially during periods of weak economic growth or with an economy just coming out of a recession.

Punishes Savers

Low interest rates tend to punish the people who should be rewarded for their thrifty ways. When interest rates on home mortgages and credit cards fall, the rates on CDs and other savings vehicles fall as well. That can make it harder for savers, and retired persons, to generate the income they need to pay their bills. When rates are low, investors may also seek out riskier investments than they otherwise would, just to get a higher yield. That can lead to a loss of principal and can punish further those who have saved their money.

Limited Options

Keeping interest rates at a low rate for an extended period of time can reduce the number of options the federal government has to stimulate the economy. Lowering interest rates typically has a stimulative effect on economic activity because it makes money cheaper and encourages corporations to borrow and expand. But when interest rates are already low and the economy is still in bad shape, the government has fewer options to deal with economic problems going forward.

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Is a Debt Negotiation Agreement Practical?

By negotiating the terms of your current debt agreements, you can save money and get out of debt quicker. Provided that you take the necessary precautions to ensure that your credit rating is not damaged in the process, a debt negotiation agreement is always a practical solution to help ease your financial burden.

The Facts

A debt negotiation agreement is a contract between an individual and a creditor in which the creditor agrees to modify the debt. This is often a good option for consumers who, due to their circumstances, find themselves unable to repay their debts.

Types

You may opt for various types of debt negotiation agreements such as a reduction of the total balance of the debt, a reduction of your current interest rate or the elimination of any excess fees you have accrued.

Benefits

A debt negotiation agreement not only benefits you by allowing you to repay your debt faster, it also benefits your creditor. By restructuring the debt to make it more manageable for you, your creditor can reduce the risk of you not paying what you owe and being forced to write off the balance as a tax loss.

Warning

A debt negotiation agreement and subsequent payments is considered account activity. The longer an account remains inactive, the less of an effect it has on your credit score. If your debt is currently held by a collection agency, making payments will result in the derogatory notation updating on your credit file and reducing your credit score.

Considerations

If negotiating with an original creditor, you can request that late payment notations be removed from your credit file. If your negotiations are with a collection agency, however, a debt negotiation agreement is only practical if the company agrees to remove any reports it has made regarding the debt from your credit file.

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How Long Must You Wait After Bankruptcy Until You Can Get Credit?

It may be possible to get credit within just a few months after receiving a discharge of bankruptcy. No rules specifically exist to stop lenders from offering credit to bankruptcy filers. It is up to lenders to determine if you meet requirements to obtain credit. Bankruptcy does hurt a credit score, but it does not stop consumers or lenders from establishing new lines of credit.

Qualifying for Credit

To get credit, have steady employment. Build up discretionary income, which is income left over each month after you pay expenses. Doing this helps to reestablish your credit worthiness. Lenders want to be sure your income is high enough to repay the money you are borrowing.

Secured Credit

Borrowers who have existing loans can use those loans to build credit worthiness. Make payments on any existing loans on time. Pay down these debts. Secured loans such as mortgages and car loans that survived bankruptcy can help to build credit. It may also be easier to qualify for secured loans after bankruptcy. Federal Housing Administration (FHA) loans, for example, are available to bankruptcy filers two years after filing bankruptcy.

Clean Up Credit Report

Check credit reports to remove old or inaccurate data. If bankruptcy discharged a debt, be sure this is up to date on the credit report. After seven years, credit bureaus will remove most negative credit data. The bankruptcy will remain for up to 10 years. Monitor credit reports at least yearly to ensure data is up to date.

Apply

Individuals need to get and use credit in order to build up a positive credit score after bankruptcy. Start with secured credit cards or low balance credit cards. While more expensive and with higher fees, consumers can still use these cards for a few years to build up credit. Some credit card lenders may offer credit to bankruptcy filers within six months of the bankruptcy discharge.

Maintain Good Habits

Although bankruptcy remains on credit reports for up to 10 years, individuals can work to build credit worthiness throughout that time. Individuals can see improvements in credit scores by making wise credit decisions. Paying bills on time, keeping balances low and maintaining just a few accounts will build credit over time. Eventually, the interest rates and fees will be lower and credit scores will improve.

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