Are you having your wages garnished? Garnishment is a legal process that judgment creditors often use against consumers to collect debts owed on credit cards, payday loans, auto loans, student debt, unpaid taxes, and any other personal or even secured debt in some cases.
In the majority of cases, your wages cannot be garnished without the creditor first obtaining a judgment against you. You must have been served by a summons and complaint that simply stated that you used a credit card to purchase items or services, signed an agreement with the issuing or loan company, and failed to make the monthly payments despite correspondence and communications to you regarding your arrearages.
You generally have 30-days from the date you were served with a complaint to file a written response to the lawsuit. If you fail to respond or contest the allegations regarding your debt by asserting that you do not owe it or have paid the obligation, then the creditor will file a Request for Default and obtain a judgment against you. Once the judgement is received, the creditor can proceed with collection efforts that include wage garnishment.
There are some entities, however, that can garnish your wages without a court judgment:
- Entities that collect on federally-guaranteed student loans
- County agencies and persons to whom you owe past child support or spousal maintenance (alimony)
- The IRS or state taxing authority
About 40% of all wage garnishments are for child support and 20% are for unpaid taxes.
In most instances, you will receive communication from any of these entities regarding your failure to make your required payments, which may even offer you terms on repayment before they begin collection. With child support, the enforcing entity will generally not give you any notice or warning other than a general one when the child support order was initially issued that failure to pay could result in garnishment or seizure of bank account funds. In these cases, you will not be served with a summons and complaint and you should not be surprised if a certain amount of your paycheck is suddenly being garnished.
Garnishment and Its Limits
Once the creditor obtains a judgment against you, it will ask the court to issues a wage garnishment order that the creditor sends to your employer. Usually, a loan or credit card agreement will have asked you for the name of your employer. If not, the creditor is entitled to depose you at court and have you answer questions about your finances including where you have bank accounts and other assets as well as the identity of your employer.
Limits on Garnishment
Once your employer has received the wage garnishment notice, it is obligated to withhold a certain amount of your paycheck or wages and send it to the creditor. Only a certain percentage of your check can be garnished and it may not be more than what federal law allows, which is the lesser of:
- 25% of your disposable income, or
- The amount of your disposable earnings that exceeds 30% of the federal minimum wage ($7.25 per hour or $217.50 per week)
Colorado follows federal law. So, if you earn less than $217.50 per week after deducting taxes and any other deductions, then your wages may not be garnished. Otherwise, the amount to be garnished may be calculated as follows:
Example: You earn $800 per week after taxes and any other deductions, which is $582.50 more than $217.50. 25% of $800 is $200, which is less than $217.50. By law, only $200 per week may be garnished.
Child Support and Student Loans
However, if you owe child support, then up to 50% of your disposable earnings may be garnished if you are supporting a spouse or child who is not the subject of the child support order. If you are not supporting such individuals, then 60% may be garnished. And, if you are more than 12-months in arrears, then an additional 5% may be taken.
For student loan defaults, the Department of Education can take no more than 15% of your disposable earnings or not more than 30 times the minimum federal wage. If you owe back taxes, the garnishment rate is determined by the number of dependents and your deduction rate.
There are occasions where a debtor might have multiple wage garnishments against him or her. In such cases, the garnishment cannot exceed 25%. If the IRS is garnishing 15% of your wages and another garnishment order is issued, your employer may not deduct more than an additional 10% from your wages.
Under federal law, an employer is barred from discharging you if you have a wage garnishment order but offers no protection if there are multiple orders. Fortunately, Colorado employers may not fire anyone regardless of the number of wage garnishment orders against them.
Avoiding a Judgment
If you are served with a lawsuit or summons and complaint regarding a debt, you may want to retain an attorney, especially if the claimed amount is substantial. If it is the IRS, your attorney may be able to propose a compromise in settlement for less than is owed or, alternatively, an installment payment plan.
You might also be able to work out a monthly payment plan with other creditors or consider filing bankruptcy after discussing this with a bankruptcy attorney. You can discharge unsecured debt in a Chapter 7 filing or pay back your creditors over time in a Chapter 13. If you have secured debt, you would have the option of returning the collateral for the loan, such as a car, without having to pay the deficiency owing, or redeem the collateral for its market value, or simply reaffirm the debt.
In some credit card debt situations, the current creditor may not be the original creditor. Debt is often sold and purchased at a discount by companies that then sue you for the obligation. In certain cases, there is no record of the original transaction so that the creditor is unable to prove that you ever owed it. If a company other than the original creditor is attempting to collect a debt from you, then request that they send you proof that you owe it. Absent supporting documentation, you can prevail in court if the creditor sues you.