Wage Garnishment: Big Stick for Creditors, and a Good Reason to File BankruptcyPosted Jun 14 2010 in Wink and Wink by @winkhesaid
When you are behind on paying your debt, life can be stressful. You may feel helpless, wondering what to do. Or maybe you think your creditors won’t do anything other than call you multiple times per day. Whatever the case, you should know that your situation can get much worse when a creditor sues you and garnishes your wages. In many states, this means they can take 25% of your income, leaving you unable to pay for life’s basic necessities. You should also know that bankruptcy can help you avoid this desperate situation.
What is wage garnishment?
A wage garnishment, or wage assignment, is a court ordered process through which your wages or earnings are withheld for payment of a debt to one of your creditors. Basically, it is a way for a creditor to hijack a significant portion of your wages directly from your employer. Even though your sweat earns this money, you don’t see it when garnished, other than as a cruel and crippling deduction on your paystub.
How does a creditor get a wage garnishment?
In order to get the right to yank your wages and cripple you financially, a creditor has to sue you and get a judgment against you. When you receive a summons notifying you that you’ve been sued, the creditor will probably be able to secure a judgment against you within 30 to 60 days if you do nothing. You may be able to extend this time by answering the complaint, and requesting more time. It never hurts to make the creditor prove their case by asking for a copy of the note or a summary of payments and interest charges.
However, these tactics only buy some time (perhaps another 60 days or so). In general, most debtors do not have a good defense to the lawsuit. If you owe the money and the creditor hasn’t waited too long (for many creditors, they can wait 6 years to sue you), then there’s not much you can do to stop a judgment against you for the amount of the debt plus interest plus their attorney’s fees in recovering the debt.
By the way, you should not simply ignore a summons. A recent article in the Star Tribune describes how some judges are issuing warrants for your arrest if you do not show up in court to answer for your debt or fail to make a court ordered payment. While these cases seem extreme, I wouldn’t want to see you spend a night in jail over a debt.
Once a creditor gets a judgment against you, they can get a writ of garnishment from the court. While the judgment gives the creditor a right to seize certain ‘non-exempt’ assets such as cash in a bank account, creditors pursue wage garnishment for many debtors. This is because many people have few, if any, non-exempt assets (which means they would keep all of their property in bankruptcy) and wages represent a stable source of income to draw upon.
Once a writ of wage garnishment is issued by the court, it is then served upon your employer, instructing them to withhold a portion of your paycheck and give it to your creditor. The employer is legally obligated to obey the garnishment order.
From the time of the judgment, creditors often can get the writ of garnishment issued and served to your employer within approximately 60 to 90 days. Therefore, from summons to garnishment generally takes 3 to 4 months if you do nothing (again, be wary of the risk of a warrant mentioned above), and can be extended a couple of months if you make the creditor prove their case.
How much can a creditor take through wage garnishment?
The answer depends on the state you live in and the type of creditor suing you. In Colorado, where I practice as a bankruptcy lawyer, most creditors can generally take 25% of your gross wages until your debt is paid (it is possible for them to take more if you make more than 30 times minimum wage).
The wage garnishment limit in Colorado is also the federal wage garnishment standard, and is law in most states. However, some states such as Texas and North Carolina, severely limit the amount of wages a creditor can garnishment. Not surprisingly, a recent study has found that bankruptcy filings in those states are lower.
In Colorado as in most states, only one creditor can garnish you at a time. If you are being sued by multiple creditors at the same time, they will have to get in line to drink from the wage faucet that comes from your hard work. But, they will get their turn at your wages if they have a judgment against you.
IRS wage garnishment
The IRS often takes more than the 25% wage garnishment limit because there are special federal laws which govern the amount of your wages the IRS can garnish. This amount is determined by a formula calculating the tax owed, the number of dependents you claim and other issues (view tables showing varying IRS garnishment amounts). Generally, this formula lets the IRS take 30% to 70% of your income. YIKES!
These risk of losing this level of income means your really have to do something about your tax debt. Bankruptcy can help. Certain taxes can be discharged in bankruptcy, while other taxes can be paid over 60 months in a Chapter 13.
Student loan wage garnishment
Many student loan lenders, including the Department of Education and student loan guaranty agencies, have the authority to collect federally financed student loans that are in default through a wage garnishment of 15%. These creditors, which essentially represent the government’s money, are unique because they can get the garnishment without a court order. So, if you’re behind by federally financed student loans, you should know that they can easily get to 15% of your wages.
While Bankruptcy does not get rid of student loans for most people, it can help you wipe out other debts so that you can afford to repay your student loans.
Bankruptcy Ends Wage Garnishments
In summary, if you’re behind on debt payments and you have a job, a lawsuit and wage garnishment is coming your way sooner or later. Your creditors have plenty of time to sue you. There’s an entire industry filled with lawyers who specialize in suing debtors and getting garnishments. They’re good at what they do, and won’t let you slip through the cracks.
While this may seem bleak, you have a big stick of your own – bankruptcy. Bankruptcy can wipe out debts before the creditors have time to sue you. If you’re being sued, bankruptcy can stop the lawsuit. If you’re being garnished, bankruptcy can stop the garnishment. However, the costs of bankruptcy can be a much bigger hurdle at that point.
So, if this is your situation, time is not on your side. I suggest you meet with a bankruptcy attorney immediately. This will give you as much time as possible to collect the funds required to pay your attorney and gather the information required. By acting quickly and decisively to get out of debt, your total cost will likely be limited to attorney’s fees.