After exhausting other methods, collection agencies may turn to wage garnishment to recover balances resulting from a judgment in a lawsuit. Collection firms typically exhaust other methods before using resorting to wage garnishment to recover a debt. A wage garnishment can be complex and must follow specific legal procedures to avoid violating the consumer’s rights.
What is Wage Garnishment?
Wage garnishment is a legal process that requires an employer to withhold a portion of an employee’s earnings to repay a debt. A wage garnishment must be ordered by a court typically after the court issues a judgment in a lawsuit stating the consumer owes a debt. The court doesn’t force a consumer to pay a judgment. Instead it’s up to the judgment creditor—the party who won the lawsuit—to collect payment. They may opt to use wage garnishment if other methods aren’t successful.
Types of Wage Garnishment
There are several types of wage garnishments based on the nature of the debt.
- Creditor garnishments
- Child support and alimony
- Student loans
- State and Federal tax debts
Wage Garnishment Limits
The law protects consumers from having too much of their wages garnished. Regardless of the size of the debt, consumers must be left with a reasonable amount of their earnings to live on, even when they owe debts.
Under Title III of the Consumer Credit Protection Act, or CCPA, wage garnishments can’t be more than 25% of an individual’s disposable earnings or an amount by which disposable income exceeds 30 times the current federal minimum wage, whichever is less. Disposable income is income left after legally mandated deductions, like taxes. (The limit increases to 60% if the garnishment is for child support payments.)
Many states have also have wage garnishment law that applies to state residents. These laws may set different wage garnishment limits and may even prohibit wage garnishments for creditors and debt collectors. If a state’s law allows for a smaller amount of wages to be garnished than the CCPA, then the state’s law would be used.
Certain types of income are exempt from garnishment. Generally, this includes Federal benefits like:
- Social Security
- Supplemental Security Income
- Veterans’ benefits
- Federal Railroad payments for retirement, unemployment, and sickness
- Civil Service Retirement (CSR) payments
- Federal Employee Retirement System (FERS) payments
Collection Firms and Wage Garnishment
Before resorting to wage garnishment, collection firms typically explore over avenues, like phone calls, text messages, and letters. When other methods prove ineffective, wage garnishment may offer an option for recovery. However, it does require strict documentation and due diligence to avoid violating the law.