If you have delinquent debt, a wage garnishment order may be filed against you to allow creditors the right to a portion of your wages to repay your debt. Wage garnishment is a legal process that must be filed with the court. Filing a garnishment order is typically the last option creditors have to collect delinquent debt. If you have been notified of a wage garnishment order, it’s best to contact a tax relief expert in Seattle, Bellevue, Tacoma, Kirkland, and Lynnwood.
What Is the Difference Between a Levy and a Garnishment?
Although wage garnishment and a bank levy both collect a portion of your income to pay off certain debts, there is a big difference in how the debt is collected. With wage garnishment, an employee’s earnings are subtracted from each paycheck. With a levy or non-wage garnishment, creditors are allowed to collect income directly from your bank account. Both a bank levy and wage garnishment are legal processes facilitated by a court order.
How Do Wage Garnishments Work?
The wage garnishment process is something your employer will have to comply with. When you receive wage garnishment orders, your employer will be instructed to forward a portion of your wages to various creditors. By garnishing your wages, creditors will receive guaranteed payments for as long as you are employed until you have paid off all debts in accordance with your payment plan.
How Much of Your Wages Can Be Garnished?
The Consumer Credit Protection Act (CCPA) has certain limitations for wage garnishment. This means that the entirety of your wages cannot be deducted for garnishment purposes. Instead, wage garnishment can only subtract a percentage of your disposable income depending on the type of garnishment orders you have.
What Counts As Disposable Income?
Disposable earnings are an employee’s gross income minus the legally required deductions for local taxes, state taxes, and federal taxes. Other payroll deductions of an employee’s wages such as healthcare coverage, union fees, and other voluntary wage assignments do not count in the calculation for weekly disposable earnings.
What Types of Wages Can Be Garnished?
An employee’s disposable earnings can include any lump sum payment for personal services from an employer, certain tips earned on the job, and income such as salaries, commissions, and bonuses. Payments from a pension account, retirement program, or disability plan may also be eligible for garnishment. Weekly disposable income can also include severance pay, termination pay, workers’ compensation paid for wage replacement, and payments from insurance settlements.
Does It Matter If You Make More Than the Federal Minimum Wage?
The federal minimum wage currently equals $7.25 an hour, although some states may have higher minimum wages. Your wages are a huge part of the calculation that will determine your disposable earnings and may even dictate whether your wages are allowed to be garnished.
If your weekly disposable income is less than 30 times the minimum wage, your wages cannot be garnished. If your weekly disposable income is greater than 30 times the federal minimum wage, your wages can be garnished by up to 25% of your paycheck. Some forms of debt, such as student loans, will have different limitations for wage garnishment. Additionally, the IRS does not have to comply with these limitations if you owe back taxes. Other federal and state laws may have other garnishment limitations.
Why Do Wage Garnishments Happen?
Not all debts can result in wage garnishment. In fact, wage garnishment will typically only happen after other avenues of debt collection have been exhausted. You may receive a court order to garnish wages for debts such as child support, consumer debt, back taxes, and student loans.
You Have Unpaid Child Support
Unpaid child support payments are one of the most common reasons an employee’s wages are garnished. A judge may order garnishment for child support if a parent is considerably delinquent in payments, such as being late for more than 12 weeks. Under federal law, as much as 60% of an employee’s wages can be garnished to enforce child support payments so the parent is meeting their legal obligation.
You Have Consumer Debt
Consumer debts include credit cards, personal loans, mortgages, medical bills, and auto loans. When you fall behind on consumer debt payments, your creditor will usually sell your debt to a collection agency. The collection agency may use aggressive tactics to pay off this debt, including filing court orders for wage garnishment.
Your state laws may determine how consumer debts are paid off with garnished wages. In some states, consumers may have additional protections that prevent consumer debt garnishment.
You Have Unpaid Taxes
Wages can also be garnished for taxes you owe the government. Federal or state taxes can both result in legal orders to garnish wages. If you owe the IRS taxes, you will usually have several opportunities to apply for a payment plan to pay off your back taxes. However, if you are still delinquent in your debt, the IRS will send a Final Notice of Intent to Levy, which may allow the government to collect payments directly from your bank account instead of your employer.
Generally, most taxpayers know if they have unpaid back taxes. When you file your taxes, you will usually get a bill from the IRS if you owe any taxes. While some people can easily pay these taxes each year to have a clean slate for the next tax season, some people with exceptional tax debt may need to make payment arrangements.
You Have Student Loan Debt
Finally, if you have student loans and your payments are in default, your student loan lender may file a court order to garnish your wages. Both private student loans and federal student loans can result in garnished wages. In general, federal student loans can only garnish up to 15% of your disposable income, according to the Higher Education Act of 2018. Federal student loans do not always require a court order, either.
Can Filing for Bankruptcy Stop Wage Garnishment?
If you have an outstanding debt that needs to be paid back with a wage garnishment, one of the options you have to stop or pause the garnishment is filing for bankruptcy. Under federal law, once you submit bankruptcy paperwork, all debt collection should cease until your bankruptcy is approved or until you can make appropriate payment arrangements.
Typically, people will only file for bankruptcy to stop wage garnishment if they will face financial hardship due to the amount being withheld from their wages every pay period. However, even if you can discharge some of your debts with bankruptcy, other debts may remain after your bankruptcy has been approved. For example, ordinary garnishments such as consumer debts may be discharged, but garnishments for child support may remain.
Other Ways to Stop Wage Garnishment
Your state laws may give you other options to stop wage garnishment. When a garnishment order is put in place, you may be able to reverse the order by going to court to argue that the garnishment order is incorrect. Some people may qualify for certain exemptions, such as a head-of-household exemption or a financial hardship exemption, that can reduce the percentage of disposable income withheld from each paycheck.
Sometimes, you may be able to negotiate directly with creditors for debt settlement. With debt settlement, a creditor will agree to lift a garnishment order in exchange for paying back a certain amount of the total debt owed to the creditor. A debt relief expert will be able to give you more advice about how to stop wage garnishment for unpaid debt.
Can You Have Multiple Garnishments?
Some people may have multiple wage garnishments from various creditors. If you have multiple wage garnishment orders, then your income after wages are garnished will likely be very low. However, your employer cannot fire you for having multiple garnishments. If you have more than one wage garnishment order, it’s best to speak with a tax expert for debt relief.
How Long Can Your Wages Be Garnished?
In general, wages can be garnished until the total debt is paid off, the debt is settled, or the debt is discharged after filing for bankruptcy. Most of the time, wage garnishments can last for several years.
Furthermore, creditors may be able to file a wage garnishment order until the statute of limitations on the debt has passed, which can vary depending on the type of debt and your state laws. The statute of limitations enforced by your state will not usually apply to federal debts, such as IRS debt, which can be collected through garnished wages for six years or longer.
Can Your Wages Be Garnished Without Notice?
In general, if your wages are being garnished, you will receive some kind of notice beforehand. While some creditors, such as the government, do not need to file a court order for wage garnishment or a levy on the debtor’s bank account, you will still usually receive a document to notify you about the debt collection. If you do not receive a notice, but your wages are being garnished, you should speak with your employer or bank immediately.
If a court or government agency has filed a court order for wage garnishment, then a portion of your paycheck will be collected to pay off your debts to federal agencies or other creditors. Wages garnished from your paycheck can severely reduce your disposable income, which is why it’s a good idea to speak with a tax relief expert as soon as possible. Reach out to Seattle Legal Services, PLLC at 206-895-7268 to learn more about debt relief today.