Laws Concerning Garnishment of Wages
When it comes to debt, laws governing wage garnishment give private creditors as well as governmental agencies the authority to take out a certain portion of a debtor's income to pay a debt. However, the amount of disposable earnings exempt from wage garnishment ultimately depends on the nature of the debt and if state law permits wage garnishment as a way to collect.
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Federal Garnishment Laws
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Regardless if wages are garnished as a result of a civil judgment or past-due child support payments, all laws governing the garnishment of wages are contained in Title III of the federal Consumer Credit Protection Act (CCPA). Title III sets forth the percentage of a debtor's disposable earnings that are exempt if wage garnishment is the method used to collect a debt.
Private Creditors
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Wage garnishment, also known as wage attachment, is often looked at as a last resort for private creditors, such as credit card companies who want to collect a bad debt from a consumer for an unsecured loan. The creditor must first file suit against the debtor in court. If the court finds that the debt is legitimately owed and rules in favor of the creditor, obtaining a garnishment order from the court is one method by which the creditor can collect. The order is delivered to the debtor and his employer, after which a certain amount of money is deducted from the debtor's paychecks, usually until the entire debt is paid.
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Garnishment & State Laws
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Title III limits the amount a private creditor can garnish to 25 percent, or 30 times the amount of the federal minimum wage, of the debtor's disposable weekly earnings--whichever amount is greater. "Disposable earnings" is defined as the amount of earnings left after federal income taxes, Social Security and other legal deductions are taken out. However, it's important to note that while federal law sets the exemption criteria, state laws do not have to allow private creditors this method of collection. In fact, some states, such as Texas and Pennsylvania, don't allow wages to be garnished by private creditors. Other states may allow creditors to garnish only 15 percent of the debtor's disposable earnings. Never can a state's laws supersede federal law and allow private creditors to garnish more than the amount set forth in Title III.
Other Types of Garnishment
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Wage garnishment is not an option strictly allocated to private creditors. Title III provides that disposable earnings can be garnished at a higher rate, if the debt owed is for child support, defaulted student loans, unpaid federal income taxes and other federal loans. For example, up to 50 percent of a person's disposable earnings can be garnished for child support if he is already supporting a new family. However, if he no dependents, wages can be garnished up to 60 percent, and if the person is in arrears for more than 12 weeks, this amount goes up to 65 percent. If wages are garnished due to unpaid taxes, the IRS is given latitude to garnish anywhere between 30 percent and 70 percent of an individual's wages, depending on the tax debtor's marital status and number of dependents. When the IRS garnishes income, this is known as a "wage levy."
Pros & Cons of Wage Garnishment
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Although some private creditors may find wage garnishment the only method of collecting a judgment, unfortunately, obtaining a garnishment order comes with inherent risks. The debtor may simply quit his job rather than risk an employer finding out about the judgment or the debtor may work for cash "under the table." Alternately, the debtor may file for bankruptcy. Some states, such as New York, give debtors a 30-day grace period before a garnishment order is delivered to an employer during which time the debtor can make payment arrangements to the creditor.
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