Are you aware that your creditors or the Internal Revenue Service (IRS) have the legal power to force your employer to withhold a certain percentage of your wages as payment for money you owe them? We call this practice wage garnishment and it can be devastating to you.
Wage garnishments are generally a bad idea for two major reasons. One, you risk losing a significant percentage of your wages. Though the law puts limits on the amount that can be garnished, you are likely to feel the financial impact, regardless.
Two, your credit record may be damaged and this means having a lower chance of getting credits. The good news is that there are ways to stop or resolve it and we are going to look at the options. But for a start, let’s see how much of your wages can be garnished
Types of Debts that Can Lead to a Garnishment
Here are the common types of debts that can lead to wage garnishment and the limits that apply to each of them:
Tax Debt – If you owe the government back taxes, the IRS will send a garnishment notice to your employer to demand up to 15% of your disposable income (DI). Disposable income refers to what remains after taking out deductions like health insurance, life insurance, social security, donations, and savings plans.
The IRS is, however, expected to consider factors like current deductions and beneficiaries before serving you with the garnishment notice. Unlike most garnishments, a court order is not necessary when the IRS wants to garnish your wages for tax debt.
Child Support – Your kids are your obligation and you need to take care of their basic needs. If not, then you can be served with a wage garnishment notice. The law allows up to 60% of your DI to be garnished for child support. In case you already have another child that you are supporting, then up to 50% of your DI may be garnished. And if you are more than 3 months late in making payments for child support, an extra 5% of your earnings may be garnished.
Alimony – If you are supposed to pay a spouse some money for maintenance after a separation or divorce and fail to do so, they can head to court and request for the garnishment of your wages. The garnishment limit for alimony is the same as that of child support.
Student Loan – If you owe the federal government money in the form of a student loan, up to 15% of your DI may be garnished. Just like tax debt, a court order is not necessary for garnishing your wages for unpaid student loans. The advantage though is that you’ll be notified at least one month in advance before your wages are garnished. The notification comes in writing and it shows how much you owe the federal government.
Consumer Debt – This category includes the following type of debts:
- Medical bills
- Credit card debt
- Outstanding personal loans
If you have consumer debt, the law doesn’t allow the creditor to garnish more than 25% of your disposable income.
What to Do After Receiving a Wage Garnishment Notice
No doubt receiving a wage garnishment notice can be alarming. However, you don’t have to panic. Here are the key steps to follow:
Step 1 – Verify the Notice
Before accepting or challenging a wage garnishment notice, you have to first verify it. You should confirm that it’s a debt you owe and not something you have already paid for. You also need to confirm how much the creditor is claiming. This will help you deliberate on a better decision.
Step 2 – Make a Decision
A wage garnishment can damage your credit record. As a result, you shouldn’t be in a hurry to make a decision. If you are not sure what to do, just talk to an attorney. They can help you do the following:
Challenge the garnishment
Through the help of your attorney, you can challenge the wage garnishment in court on any of the following grounds:
- The notice was issued in error
- You had already paid the amount in question
- Someone stole your identity and used it to secure the credit in question
- The creditor is demanding more than what’s legally allowed
With a good lawyer on your side and a great argument to back you up, it’s possible to have the garnishment notice withdrawn.
Accept it and consider paying
If your attorney thinks that the best decision is to accept a garnishment, then you should go ahead and do it. This can go a long way in having the garnishment cleared off your records. Your attorney may suggest any of these payment options
- Lump-sum payment – If you can raise the money either by selling an asset, borrowing from friends or through a bank loan, you should consider doing it. It allows you to clear your dent completely and stop the garnishment.
- Installment payments – If what you can afford are monthly installments, you should talk it out with the creditor. Provided that you make credible estimates and can pay as agreed; your creditor is likely to accept this payment plan.
- Offer in Compromise – If it’s tax debt, the law gives you the option of paying it for less. We call this payment option an Offer in Compromise (OIC). You’ll need a good attorney to convince the IRS to accept your OIC.
How You Can Stop It
A wage garnishment can be stopped by any of these options:
Attend the hearings – Since the garnishment process involves several court summons, you should attend all of them if you are looking to stop it. If you can’t, then ask a lawyer to represent you.
State protection – In states like Ohio, you are allowed to appoint a specific trustee who you make payment to. In this case, it’s the trustee who pays the creditors. Thus, as long as you are under the trustee’s protection, your creditors cannot garnish your wages.
Debt counseling – You can stop wage garnishment through a consumer credit counseling agency. They are nonprofits that can help you negotiate for a settlement. It’s generally a good option when you need more time to settle your debt.
Generally, understanding a wage garnishment is the key to evading and stopping it. The reality is that the notice is not good for your credit image and knowing the impact it has on your lending power, it’s better to stay away from it.