Does a Wage Garnishment Take a Federal or State Refund?
A garnishment is a legal action to collect a debt. Government agencies can garnish your wages without first obtaining a judgment, but there are specific procedures to follow. Other creditors have to go through the court system and obtain a judgment before requesting a garnishment order.
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Garnishment Limitations
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A garnishment requires your employer to deduct a percentage of your income. It is limited to 25 percent of your take-home pay unless it is for alimony or child support, which are limited to 50 percent. Government agencies can take as much as 60 percent, if you are behind in child support payments. The only way you can stop a garnishment is to quit your job or file for bankruptcy protection.
Tax Offset
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Only government agencies can obtain a tax offset. It is similar to a garnishment but allows federal, state and county agencies to seize your federal or state income tax refund. The government cannot take your refund using a wage garnishment, but it can easily obtain a tax offset. Non-governmental companies cannot obtain a tax offset and cannot take any part of your federal or state refund.
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Bankruptcy
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A bankruptcy filing will temporarily stop a garnishment. If you file under Chapter 13 and the court accepts your plan, the garnishment cancels, since your payment plan will include regular payments to pay off the judgment. If you fail to complete the Chapter 13, your creditor can reinstate the garnishment. A Chapter 13 payment plan will spread your payments over a reasonable period compared with a garnishment. A Chapter 7 filing and subsequent discharge will cancel the garnishment and the underlying judgment unless it was for a non-dischargeable debt such as alimony, child support or student loans.
Considerations
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Garnishments, bankruptcies and judgments occur because you do not pay your credit obligations when they are due. If you develop financial problems, contact your creditors and work out a reasonable payment arrangement. If you are unemployed, your creditors will usually understand and delay collection efforts until you get back to work.
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