When one of your creditors starts to take money out of your paycheck or bank account, it’s called a garnishment. It’s a legal collection action that creditors in some states can take to collect after they’ve obtained a judgment against you. Student loan creditors and the IRS can also use a garnishment to collect what you owe even if they don’t file a lawsuit against you.
How Garnishment Works
Most garnishments require that the creditor obtain a court judgment first. That requires your creditor to file a lawsuit against you. If you’re being sued, you’ll be served official papers and receive letters from attorneys and court notices. If your creditor or debt collector gets a judgment against you, the next step is filing paperwork to start the garnishment process. You’ll be notified of this as well. These notices will say something like “Notice of Intent to Levy” or “Notice of Intent to Garnish.” While it can be stressful to be served papers and receive these types of notices, it’s important to review them carefully. You typically have a limited amount of time to respond. If you do reach the point where your creditor has asked the court to garnish your wages or your bank account, there are several things you can do to stop a garnishment and maybe even turn the situation to your advantage.
Talk to Your Creditor
The best way to stop a garnishment is to prevent one in the first place. When you know you’re not going to pay your account according to its terms, contact your creditor to find out about alternative payment options. Some of the alternatives you can negotiate with your creditor include only paying interest for a period, making partial or no payments for a period, reducing the interest rate, or offering to settle the account for something less than what is owed.
Defend the Lawsuit
If your creditor files a lawsuit against you, you may have defenses that would prevent the creditor from taking a judgment, or might at least provide you some bargaining leverage. If possible, negotiate a settlement with the creditor before the court enters a judgment. If the creditor gets a judgment against you, your options are more limited. You may still be able to negotiate to pay a settlement amount that’s less than the amount you owe, but the judgment will erase any defenses that you could have brought during the court case on your debt.
Challenge the Garnishment
Once the creditor obtains a judgment and asks the court to order a garnishment, the creditor is required to notify you before the garnishment takes place. That way, if you have any defenses to the garnishment itself, you can plead your case. Even at that late date, after the court has entered the judgment, many creditors will agree to stop the garnishment if you enter into a payment arrangement. It’s much easier to deal with debt collectors and creditors before you reach the lawsuit stage. Once a creditor decides to file a lawsuit, you’ll be dealing with attorneys. It’s certainly possible for you to defend a lawsuit or a garnishment on your own, but it’s not necessarily the best course of action. You may think you’re saving money by not hiring an attorney to defend you or challenge the garnishment, but attorneys can often save you much more money than they cost. Many attorneys who work with consumers offer no-cost or low-cost consultations.
File a Bankruptcy Case
Filing a bankruptcy case will also stop a garnishment. In most bankruptcy cases, an injunction called an automatic stay goes into effect when a bankruptcy is filed. This injunction stops most collection activity, including calls and letters, and most lawsuits and garnishments. It may be possible for the creditor to ask the bankruptcy court to lift the automatic stay to allow the garnishment to continue, but the court will only allow that under certain special circumstances. Whether your debt can ultimately be discharged in a bankruptcy case largely depends on the type of debt and bankruptcy you file. An experienced consumer attorney can help you explore your options.
Wage Garnishments for Court Judgments
If you lose a lawsuit and a money judgment is entered against you, the person or entity that won the lawsuit can garnish your wages by providing a copy of the court order to the local sheriff or marshal, who will send it along to your employer. Your employer must then notify you of the garnishment, begin withholding part of your wages, send the garnished money to your creditor, and give you information on how you can protest the garnishment. Unless you owe child support, back taxes, or student loans, your creditors the people you owe money can’t garnish your wages unless they first get a court order. For example, if you have defaulted on a loan, stopped paying your credit card bill, or have run up huge medical bills, your creditors can’t just start garnishing your wages. They must first sue you, win, and get a court order requiring you to pay what you owe.
Federal law places limits on how much judgment creditors can take from your paycheck. The amount that can be garnished is limited to 25% of your disposable earnings (what’s left after mandatory deductions) or the amount by which your weekly wages exceed 30 times the minimum wage, whichever is lower. Some states set a lower percentage limit for how much of your wages can be garnished. You may not be fired or otherwise retaliated against because your wages have been garnished to pay one debt. Once you have one or more garnishments, however, less protection is available. Under federal law, you are not protected from retaliation if more than one creditor has garnished your wages or the same creditor has garnished your wages for two or more debts. Some states offer more protection. If you want to protest a wage garnishment, you must file papers with the court to get a hearing date. At the hearing, you can present evidence showing that you need more of your paycheck to pay your expenses or that qualify for an exemption. The judge can terminate the garnishment or leave it in place.
Wage Garnishments for Child Support and Alimony
Since 1988, all new or modified child support orders include an automatic wage withholding order. (If child support and alimony are combined into one family support payment, the wage withholding order applies to the whole amount owed; however, orders involving only alimony don’t result in automatic wage withholding.) Once the court orders you to pay child support, the court or the child’s other parent sends a copy of the order to your employer, who will withhold the ordered amount from your paycheck and send it to the other parent. If you are required to maintain health insurance coverage for your child, the payment for that will be deducted from your paycheck as well. More of your paycheck can be taken to pay child support. Up to 50% of your disposable earnings may be garnished to pay child support if you are currently supporting a spouse or a child who isn’t the subject of the order. If you aren’t supporting a spouse or child, up to 60% of your earnings may be taken. An additional 5% may be taken if you are more than 12 weeks in arrears. You may not be fired, disciplined, or otherwise retaliated against because your pay is subject to a wage withholding order to pay child support. If you owe money to the IRS, watch out: The agency can take a big chunk of your wages, and it doesn’t have to get a court order first. The amount you get to keep depends on how many dependents you have and your standard deduction amount. Your employer will pay you a fairly low minimum amount each week and give the rest to the IRS. The IRS must send a wage levy notice to your employer, who is required to give you a copy. The notice includes an exemption claim form, which you should complete and return. State and local tax agencies also have the right to take some of your wages. In many states, however, the law limits how much the taxing authority can take.
Multiple Creditors and Their Claim to Your Paycheck
By federal law, in most cases only one creditor can lay claim to your wages at a single time. In essence, whichever creditor files for an order first gets to garnish your paycheck. Your other creditors must wait their turn unless the first creditor collects on less than the allowable percentage. In that case, another creditor’s order can be put into effect up to the amount allowed by law to be taken out of each of your paychecks. There are exceptions to this rule, however. Some types of debts, such as child support, alimony, and owed taxes, can be collected upon at the same times as other debts, such as credit card or medical bills. If you owe child support, back taxes, or alimony, it is possible for your paycheck to be garnished by the state or federal government, as well as another creditor, such as a medical collection agency or a credit card company. Many debtors who receive garnishment orders against them fear that the creditor will take most of their paychecks. However, laws exist that prevent companies from taking too much money and leaving you without sufficient funds to live on or to take care of your family. Federal laws stipulate that creditors, except for the IRS and child support or alimony collection entities, must first get a court order to garnish. After they get the court’s okay, these companies can then only take up to 25 percent of your paycheck each pay period. They can collect this amount each pay period until the debt is satisfied in full. Some states, however, prevent creditors from claiming 25 percent and instead require them to collect a smaller percentage. Despite the federal law, the creditor must follow the garnishment laws in your state if that percentage is lower than 25 percent. Some states also stipulate that a period of garnishment can only continue for a finite amount of time. Even if the debt is not paid off, the creditor must release the garnishment once it has reached the period of time allowed by your state’s law.
If you owe significant amounts of debt, you could face months, or even years of being garnished. When you want to prevent this action against you, you would do well to consider some of the more common ways to prevent it. These methods include:
• Payment agreements: You can set up a monthly payment agreement with your creditor and pay a reasonable amount toward the debt. Most creditors will not garnish as long as you continue to make payments in good faith.
• Bankruptcy: You can file for a Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 involves total liquidation of most of your debts, except for child support, alimony, and federal taxes. A Chapter 13 reorganizes your debt and allows you to make payments to your creditors through the court’s trustee.
• Hardship Petition: Some states allow debtors to file a petition asking for exemption from garnishment because of their low incomes or financial hardships. The court may prevent a creditor from garnishing or order a smaller amount to be taken from your paychecks.
These methods of garnishment relief can extend the amount of time that you have to pay or forgive your debts entirely. They also prevent creditors from laying claim to your income. Creditors are allowed to pursue collection activity like garnishment against debtors. You can protect your finances by learning how your paychecks can be affected if you owe more than one creditor at a time. All child support orders automatically include a wage withholding order. If you’re ordered to pay child support, your wages can be garnished without additional court action. A wage garnishment order can also be obtained against you if you fall behind on your child support or alimony obligations. Wage garnishment limits for child support and alimony are much higher than for other types of debts. For child support obligations, federal law allows garnishment of up to 50% of your disposable earnings (gross wages less deductions required by law) if you are supporting a spouse or child who isn’t the subject of the wage garnishment order. If you don’t have another spouse or child to support, this amount can be 60%. Further, the garnishment may be increased by an additional five percent if you are behind 12 weeks or more on your obligations.
Unpaid Income Taxes
If you owe back taxes to the IRS, the federal government can garnish your wages without having to obtain a court order against you. How much the IRS can garnish depends on the number of dependents you have and your deduction amounts. State and local governments can also garnish your wages to collect unpaid taxes. But the amount they can garnish and procedures they must follow depend on state law. To find out more about wage garnishment limits for unpaid state and local taxes in your area, contact your state labor department.
How to Reduce or Stop a Wage Garnishment
It can be challenging to make ends meet when a wage garnishment reduces your paycheck. The good news is that you have options. For instance, you might be able to:
• reduce the garnishment by filing a claim of exemption with the court, or
• eliminate the debt (and garnishment) through bankruptcy.
Federal Wage Garnishment Limits for Judgment Creditors
If a judgment creditor is garnishing your wages, federal law provides that it can take no more than:
• 25% of your disposable income, or
• the amount that your income exceeds 30 times the federal minimum wage, whichever is less.
Your disposable income is established by subtracting required deductions from your total paycheck. Required deductions include things like federal and state taxes, state unemployment insurance taxes, Social Security, and required retirement deductions. They do not include voluntary deductions, such as health and life insurance, charitable donations, savings plans, and more.
When you need legal help with a garnishment in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
Spanish Fork Utah Divorce Attorney