Can a Severance Package Be Garnished?

When a person is in debt to another party, that party may take legal action to incur collection of the debt. This can include suing the debtor, and, if the debtor continues to refuse to make payment after being ordered to do so by a judge, garnishing the person's wages. Although normal wages are usually garnished, severance packages can usually also legally be garnished by private debt collectors.

Severance Packages

Severance packages are payments made by a company to an employee who has been terminated — or, in some cases, has voluntarily resigned — from the company. Severance packages can be paid in a single lump sum or they can be portioned out over a period of time. Like normal wages, they are payments made by the employer to the employee and are taxed accordingly.

Garnishment

Garnishment laws are not the same in each state. Each state has its own rules about when garnishments can be applied and on whom. However, there are no federal or state laws that protect severance payments made by an employer when an employee is terminated from garnishment. If an employee is eligible to have his normal wages garnished, then he can likely have his severance pay garnished as well.

Bank Account Seizure

In addition, even if an employee does not have his severance pay directly garnished — meaning it is intercepted before it is paid to the employee — the employee may still have his bank account seized. Just as a debt collector can have a judge issue an order of garnishment, he can also ask a judge to issue an order of seizure on the debtor's bank account. Severance funds are not protected from this by any state or federal law.

Considerations

Even if an individual is legally allowed to garnish a severance package, the logistics of doing so may be tricky. This is because all garnishments require a court order in advance. If a severance package cannot be anticipated before it is issued — as if often the case when an employee is terminated — it may be exceedingly difficult to serve the order on the employer.

References

• "The Complete Idiot's Guide to Getting Out of Debt"; Ken Clark; 2009