Wage garnishment is a common tool that creditors often use to recover their loan amount from borrowers. This can cause significant financial distress to the borrower especially when their wage is all they have to manage their monthly expenses. If you find yourself stuck in such a situation where your creditor has started garnishing your wage then it’s important to learn how it works, what are your rights and how you can protect your income.
What Is Wage Garnishment?
Wage garnishment is a legal process where the court orders the employer to hold a portion of the paycheck of the employee in order to repay the debt of the creditor. This way creditors can directly collect the debt from the bank account, financial institution or employer of the borrower.
Wage garnishment is usually used as the last resort by creditors when they’ve made all their efforts to recover their loan from the borrower but nothing works. As a borrower, if you are trying to negotiate a debt settlement with your creditor, you might wonder if wage garnishment is still a possibility? Well, the answer is “yes”, it’s possible and your lender can take a portion of your income even when you are in the process of debt settlement.
The only exceptions include;
- Unpaid taxes
- Child support
- Federal student loans
In case of consumer debts like credit cards and personal loans, the creditor first has to go through a legal process before garnishing your wage.
Understanding Debt Settlement
Debt settlement is a one popular financial strategy where a debtor negotiates with the creditor to reduce the debt and in return he has to pay a lump sum amount decided as per the agreement. Here are some key characteristics of a debt settlement;
- It’s usually used as an alternative to bankruptcy
- It can have a negative impact on your credit
- It’s only used for unsecured debts like medical bills and credit cards
- Creditors aren’t obliged to accept your settlement offer and they can reject the offer.
Can Creditors Garnish Wages During Debt Settlement?
As said earlier, it is a possibility that your creditor can garnish your wage during a debt settlement but there are a few conditions to it. Starting with;
1-Yes, If A Judgement Already Exists
In case your creditor has already sued you and has a court judgement where he’s allowed to garnish your wage then even if you enter into a debt settlement negotiation, he can still continue or begin wage garnishment.
2-No In Case There’s No Judgement Yet
If your creditor hasn’t taken any legal action against you and you start a debt settlement negotiation, in this case, he cannot garnish your wages immediately. However, the creditor has all the rights to sue you if your negotiation fails or you drag the agreement. Once a lawsuit has been filed against you, the court can allow wage garnishment if your creditor wins the case.
3-Yes, It’s Possible During The Settlement Negotiation
When you enter into a debt settlement negotiation, it increases your risk of getting sued by your creditor, especially because you have to stop making the payments and show a delinquent account. This can push your creditor to sue you especially when he doubts your ability to settle the debt.
How Does Wage Garnishment Work?
Here’s how the wage garnishment process works;
Creditor Action
Your creditor will first file a lawsuit against you for the non payment of the loan.
Court Order
If your creditor wins the judgement, the court may order a garnishment order.
Employer Compliance
Your employer will then be informed to hold a portion of your wage in order to pay off the creditor’s debt.
Ongoing Payments
Garnishment will continue till all your debt has been paid off including the fees and the interest.
Federal Wage Garnishment Limitations
Consumer Debts: Up to 25% of your disposable income can be deducted. For example if your disposable income is $290 per week that means $72.50 will be garnished considering the 25%.
Federal Student Loans: In case of federal student loans, 15% of your disposable income will be garnished.
Child Support: If you don’t have any dependents then 60% of your income can be garnished and if you do have dependents then 50% will be deducted.
How To Prevent Wage Garnishment?
Dealing with debt alone is quite stressful and wage garnishment just adds to that mental strain. It’s never good to reach a point where your creditor starts garnishing your wages. If a court makes a judgement against you and your creditor is allowed to garnish your wage then stopping the process can be quite tough. In a nutshell, it’s best if you take timely measures to avoid such a situation;
Debt Settlement: If you are close to bankruptcy and don’t want to get involved into legal proceedings then it’s best to try and negotiate a debt settlement with your creditor. Even though a creditor is under no obligation to accept your settlement offer, you should still give it a try. To make sure that it resolves your debt, it’s best if you prepare the lump sum amount before even starting the negotiation.
Challenge The Garnishment: When you receive the court order that states that your wage will be garnished, it’s important that you challenge the garnishment. Every state has its own rules so it’s important to learn about your rights and how you can challenge the court order. You’ll be given a certain timeline within which you have to take the action. Once that time limit expires, it’ll be really difficult for you to go against the garnishment judgement.
Reviewing The State Exemptions: In some states social security income, child support and retirement incomes are exempted and they cannot be garnished. In order to assess and evaluate your situation, it’s best if you seek legal help because claiming exemption means filing in the state court. You should also learn about the statute of limitations when it comes to debt. If your debt is 4 to 6 years old, chances are that the statute of limitations has expired and that your creditor can’t take any legal action against you.
Filing For Bankruptcy: Bankruptcy should be your last resort but if you want to stop wage garnishment then it’s important that you take the step immediately. In bankruptcy, you basically get an automatic stay and no creditor can take any legal action against you or garnish your wage especially when your case is already being heard in the court. It’s true that bankruptcy sounds scary but at least it’s less harmful than seeing your wages garnished.
Opt For Credit Counseling To Deal With Your Debt
If you are facing the critical stage of your debt where your creditor is threatening you with wage garnishment then it’s important that you seek legal and professional support immediately. Credit counseling is a great move especially because it’s free and with professional help you can easily manage your budget and become debt free. Counselors can evaluate your situation and they are bound by the law to provide you with the best possible solutions to resolve your debt.
Final Word
Debt settlement is undeniably a viable way to resolve your debt but it doesn’t come with any guarantee or protection against wage garnishment. Especially if a judgment already exists, your creditor will most probably make the move and garnish your wage which can wreak havoc on your financial situation. In order to navigate the process you should act quickly, understand your rights and seek professional legal help to protect your income. Companies like Mountains Debt Relief can work wonders for you in such tough situations. They offer the most professional services ever that can help you become debt free quickly!
FAQs
Q1. Can Debt Settlement Stop Wage Garnishment?
Yes, in some cases debt settlement can help you stop wage garnishment but only if the negotiations goes successful and you and your creditor agree to the settlement terms. If garnishment has already started then you’ll either have to negotiate a settlement with your creditor that includes stopping the garnishment or simply seek legal remedy to fix the issue.
Q2. How Much Of My Paycheck Will Be Garnished?
As per the federal law, creditors can garnish 25% of your disposable income or the amount by which your income exceeds at least 30 times the minimum federal wage. Each state comes with its own laws and rules regarding garnishment so it’s important that you first know about them in detail.
Q3. Will Wage Garnishment Affect My Credit Score?
As wage garnishment happens due to a court judgement, it’ll show on your credit report and it can bring your credit score down significantly. The garnishment itself doesn’t have any impact on your credit but its underlying cause and court order will negatively affect your score and report.