What is garnishment?
Garnishment, or wage garnishment, occurs when money is legally withheld from your paycheck and sent to another party. This is a legal process that requires a third party to deduct payments directly from a debtor’s salary or bank account.
Typically, the third party is the employer of the debtor and is known as the garnishee. Federal law prohibits employers from terminating a worker to avoid processing a garnishment payment.Garnishments are used for debts such as unpaid taxes, fines, child support, and delinquent student loans.
Key points to remember
- A garnishment is an order directing a third party to seize assets, usually wages from employment or money in a bank account, to settle an unpaid debt.
- The IRS can garnish wages without a court order.
- The Consumer Credit Protection Act sets limits on what can be garnished on wages, except unpaid taxes, overdue child support, bankruptcy orders, overdue student loans and voluntary salary transfers.
- The debtor may be entitled to relief if he is facing financial hardship.
How garnishment works
In order for a debtor’s wages to be garnished, a creditor usually needs to get a court order proving that the debtor owes money and has defaulted on payment. If debt is a Tax Service (IRS) levy, a court order is not required.For example, if John Smith owes $ 10,000 in overdue and unpaid taxes, the IRS can resort to garnishment of his wages.
The IRS would then order Smith’s employer to pay part of his wages for a period of time until Smith’s tax liability is fully paid. Since garnishments are usually the last resort to collect debts and show a debtor’s adverse repayment history, they can hurt an individual’s credit rating.
The Consumer Credit Protection Act stipulates the amount of income that can be garnished from an individual’s paycheck. The garnishment amount is the lower of the following amounts:
- Twenty-five percent of weekly disposable income if the person’s disposable income is greater than $ 290.
- Any amount greater than 30 times the weekly minimum wage, which is $ 217.50 ($ 7.25 x 30).
People with disposable income of less than $ 217.50 per week do not receive any wage garnishment. People who receive a disposable Income between $ 217.50 and $ 290 per week can have any amount over $ 217.50 entered. For available weekly earnings over $ 290, a maximum of 25% can be entered.
Disposable income is defined as gross income less any legally required deductions, such as federal, state, and local taxes and Social Security deductions.
The garnishment limits set by the Consumer Credit Protection Act do not apply to unpaid tax debts, child support, bankruptcy orders, student loans or voluntary wage allowances. Federal agencies and federal student loan holders can foreclose up to 15% of an individual’s salary.??
Sixty percent of wages can be garnished for child support payments if a person has no other dependents. Federal and state garnishment limits may differ, in which case the lower garnishment limit applies. If a person is facing financial hardship due to a wage garnishment, they may be eligible to file a request for a reduction in the garnishment amount.