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You may know that failure to pay debts can damage your credit score, and not paying taxes or child support can eventually land you in jail. But getting behind on these types of payments can also result in the loss of some of your income through a process called wage garnishment.
Wage garnishment is when a creditor gains legal grounds to withhold a portion of your paycheck, which your employer diverts toward paying off your obligations.
How Does Wage Garnishment Work?
If you've failed to pay a significant amount of taxes, debts or court-ordered child or spousal support, one form of recourse you may experience is wage garnishment. This is a formal process a creditor, court or government agency can initiate to collect owed money. If successful, they can receive a portion of disposable earnings from your paycheck.
The process varies depending on the type of debt. In the case of a non-government creditor like a credit card issuer, they can't just order you to pay them money. Instead, they must file a lawsuit, and if they win a judgment against you, the judge grants a court order for wage garnishment.
If you've failed to pay court-mandated child support or spousal support, a judge may order wage garnishment to ensure payment.
There are similar procedures with government agencies, though they can sometimes garnish wages without filing a lawsuit or going to court. The IRS and state tax agencies can obtain wage garnishment for unpaid taxes, while other federal agencies can pursue it for government non-tax debts like federal student loans. For example, if you default on student loans, the government doesn't need a court order to garnish your wages. But if you're self-employed and there's not an employer they can contact for wage garnishment, you may be sued so they can collect payment.
When wage garnishment is ordered, you don't pay anyone directly. Instead, your employer takes that money out of your paycheck and pays the creditor on your behalf.
Only "disposable earnings" can be garnished, so you will still pay your legally required deductions like taxes or withholdings for employee retirement systems. However, disposable earnings aren't limited to your regular salary; they also include bonuses, sales commissions, an employment-based disability plan, periodic earnings from pensions and retirement plans, and more. Unfortunately, money put toward non-required deductions like health or life insurance, or retirement contributions that aren't legally required, are fair game for garnishment.
Both the federal government and state governments have limits on how much income can be taken and what payments are protected from wage garnishment. That's because, while the goal is repaying what you owe, the government wants to ensure you have enough money to live on.
Types of Wage Garnishment
While we're focusing on wage garnishment from paychecks, it's worth knowing there are actually two types of garnishment:
- Wage garnishment: This is when your employer is ordered to take a percentage of your disposable earnings from your paycheck and send it to the creditor.
- Non-wage garnishment: Instead of money coming from your work paycheck, a creditor you owe is granted permission to take a portion of money from your bank account. Some money is protected from this type of garnishment, such as two months' worth of certain federal benefits like Social Security. Some states ban garnishing money from bank accounts altogether.
Reasons for Wage Garnishment
The reasons for wages garnishment vary, but some of the most common situations are:
- Very past due payments or default on consumer debts like medical debt or credit cards
- Default on federal debts such as student loans
- Failure to pay court-mandated child support or spousal support
- Unpaid taxes
- Bankruptcy
What to Do if Your Wages are Being Garnished
If you receive notice of a lawsuit from a debt collector, don't ignore it. According to the Consumer Financial Protection Bureau (CFPB), not appearing can result in a judgment against you. It's best to hire a lawyer who's experienced in debt collection or consumer law to represent you and potentially negotiate a settlement or repayment plan. Check out LawHelp.org if you need help finding affordable or free legal assistance.
If your wages do become garnished for a legitimate reason and you can afford it, there's not much you can do until the debt is repaid. However, if you can't afford wage garnishment or you believe it's too high, there are some ways you can adjust or fight it:
- File an objection. Once you're notified your wages will be garnished, there's usually a window of a few days to a few weeks before your employer actually starts taking money from your paychecks. If you believe there's an error or it's for too much, you can file a written objection, but act quickly. Another reason for objection could be due to the federal and state laws exempting certain income from garnishment. For example, your state may allow reduced garnishment for the head of household. If you think you have grounds, you can object by filing a claim of exemption with the court. You might have to attend a hearing, and if you're victorious, a judge may eliminate or reduce the garnishment.
- Send a CFPB complaint. If you think your wages were garnished improperly, send a complaint to the CFPB.
- File for bankruptcy. If none of these options work and you're struggling, a last-resort option is to file for bankruptcy. Depending on the state, you can exempt certain assets from being taken, which can help stop wage garnishment. This is an extreme solution that will damage your credit, so only go this route after consulting financial professionals.
Depending on the debt or payment in arrears and the collector, you may have other options. For example, if the IRS is garnishing wages due to back taxes, you can contact them to try to make a settlement offer or set up a payment plan.
FAQs
The approach will vary depending on the type of debt. As mentioned above, for some situations, you can file an objection with the court claiming exemption to try to reduce or stop garnishment. Another way is to file for bankruptcy, but it's best to consult an attorney before making moves.
For student loan wage garnishment, you can reach out to your loan holder and negotiate repayment terms or enter a rehabilitation agreement in lieu of wage garnishment. If that doesn't work, you can request a hearing in writing. If you're successful, you'll either avoid wage garnishment for a year or get it reduced.
The credit bureaus (Experian, TransUnion and Equifax) don't receive information from the courts on wage garnishments, so the garnishment itself won't appear as an item on your credit report.
However, if the account that wages are garnished for appears on your credit report, the creditor may add a notation to the account that payments are assured by wage garnishment. So if your wages are garnished to pay off defaulted credit card debt, the garnishment itself won't hurt your credit, but the debt account in default will still appear on your credit report and can hurt your credit.
Below are wage garnishment limits according to federal law. Bear in mind that you may also pay interest on the debt you're repaying through garnishment, which can prolong the repayment time. Additionally, state laws on garnishment can vary and offer different protections, so look up laws in your state.
- For student loans: Federal law allows garnishment of up to 15% of disposable earnings.
- For child support or spousal support/alimony: Federal law allows garnishment of up to 50% of a worker's disposable earnings if they're supporting a child or spouse not involved in the garnishment case. If not, wage garnishment goes up to 60% of disposable earnings. If support payments are more than 12 weeks behind, your disposable earnings can be garnished an additional 5% (a total of 55% or 65%, depending on your situation).
- For federal back taxes: The garnishment—or "levy" in IRS lingo—amount depends on your tax filing status and the number of dependents; this IRS table can help you find the amount for your situation.
- For ordinary wage garnishments: The federal government has a formula for the maximum amount taken from paychecks. Garnishments are either 25% of your disposable earnings, or the amount by which your disposable earnings are greater than 30 times the federal minimum wage, whichever is less.
The Bottom Line
Wage garnishment can be exasperating, especially if money is already tight and your credit score is suffering due to defaulted debt. When possible, take proactive steps to improve your credit and help offset damage. These include strategies like paying all bills on time and reducing debt balances. You can also try Experian Boost®ø, a free feature that gives you credit for payments for utilities, streaming services, rent and phone bills.
