Understanding Wage Garnishment and How to Avoid It

If you’ve heard horror stories about wage garnishment, you may believe it only happens to “deadbeat parents” or those that owe thousands of dollars in back taxes. In reality, however, wage garnishment can occur for many reasons, so it’s important to understand exactly what it is, and which unpaid debts can leave you subject to wage garnishment.

Wage garnishment is essentially a last-ditch effort for creditors to collect on a debt by hitting the consumer where it hurts — in the paycheck. In the majority or states, a court order is required for a garnishment to be initiated. That means the creditor must sue you, get a judgment and ultimately obtain a court order.

Once this happens, your employer is required to withhold a portion of your wages and send it to the creditor. The amount that can be garnished is determined based on the amount of the debt, and some types of debts do not require a court order for garnishment. Wage garnishment can be embarrassing because it reveals your financial troubles to your employer; it can also impact credit scores by taking money out, creating a snowball effect, and leading you further and further into debt.

What debts can be garnished

Generally, any of your unpaid debts can result in creditors being able to garnish your wages. Most creditors are required to obtain a judgment and court order before they are allowed to garnish your wages. However, depending on the type of debt, certain creditors do not need a court order. Let’s take a look at some of the unpaid debts that can result in wage garnishment.

-Child support and alimony

All child support orders include a wage withholding order without any court action required to begin the garnishment process if the debts go unpaid. Wage garnishment limits for child support and alimony are typically higher than for other types of debts. Federal law allows garnishment of up to 50 percent on child support. This percentage is deducted from disposable earnings (gross wages less deductions required by law).

-Unpaid income taxes

If you owe back taxes, the federal government (IRS) can garnish your wages without a court order. The amount the IRS can garnish depends on your filing status, including the number of dependents you have and the amount deductions you have. While state and local governments can also garnish wages for tax liability, the amount depends on state law.

-Student loans

Student loans are typically viewed as some of the most forgiving forms of debt because they can be deferred for repayment for long periods of time. This means that in the event of a job loss or other economic hardship, you may be eligible for a deferment or forbearance. Deferment and forbearance on student loans both allow you to put your student loan payments on hold for a period of several months up to a year or longer. Still, the U.S. Department of Education can garnish your wages without a court order if you fall too far behind. This type of garnishment is generally about 15 percent of your disposable earnings, but cannot exceed 25 percent.

Garnishments that require court judgments

While garnishments including those mentioned above do not require a court order, other types of consumer debt — including credit cards and medical bills — do. These debts require the creditor to file suit against you to obtain a judgment before wage garnishment can begin and garnishments are typically limited by federal law to 25 percent of your disposable earnings.

It’s not all that common for unpaid credit card or medical debts to escalate to wage garnishment, however, because these accounts are generally sold to a collection agency first. If the collection company is unsuccessful in recovering the debt, a lawsuit can be filed against the consumer. If the consumer is ruled against in the lawsuit, it’s at that point that a judgment may be issued to garnish wages.

Avoiding garnishment

Of course, the best way to avoid garnishment and maintain a high credit score is to make timely payments on all of your debts. If, however, you do find yourself in a situation where your wages are being garnished, you can take action by requesting that the court adjust the amount of the garnishment to a level that allows you to continue supporting yourself. Some states’ garnishment law differ from federal law, too, and therefore the court is required to adjust the garnishment to a lesser amount.

The most important step you can take to avoid garnishment is to get help before you find yourself in a situation where you’re far behind on your debts. If you have already fallen behind on your debts because of a job loss or other financial hardship and your credit score is suffering, you could benefit from working with a credit repair professional.

A professional credit repair service will conduct a credit check on your behalf, which can help you assess your situation by providing a clear picture of all of your debts and financial liabilities. You can also check your credit scores and find out what loans and offers you may be eligible for in order to consolidate and manage your debts to get back on track.
If you’d like to learn more about credit repair assistance, contact Credit.com today

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

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