Garnishment Rules

In a garnishment action, the creditor "shares" the income of the debtor until the debt is repaid.

Garnishment is one way a creditor can collect on a debt. The most commonplace form of garnishment is a regular deduction from the debtor's wages until the debt is satisfied. Child support enforcement services in many states automatically garnish the wages of a parent who owes child support, and the employer preparing payroll must deduct the support amount each pay period and send it in. Garnishment rules help all the parties involved be aware of their rights and responsibilities.

Employer Garnishment Rules

Title III of the Consumer Credit Protection Act prohibits employers who receive a garnishment order from firing the employee involved in order to avoid dealing with the extra work. However, if an employer is asked to process a second garnishment for the same employee, she is not restricted by Title III from dismissing the employee.

Once an employer receives a court-sanctioned garnishment order, she must complete and remit a certification form to the creditor. She has to withhold the correct amount--as shown on the DOL's Wage Garnishment Worksheet--each pay period from the employee's wages until the creditor reports that the debt is satisfied. If an employer does not comply with the above rules, the Department of Labor can sue, prosecute and levy a fine. Some states allow employers to deduct a one-time administration fee from the employee's wages to cover set-up and postage.

Garnishment Rules for Employees

As an employee, you are protected by Title III so you have sufficient take-home pay while your wages are being garnished.

Title III protects employees who are being garnished by ensuring that they will have take-home pay despite the garnishment. Ordinarily, no more than 25 percent of your disposable earnings--the amount remaining after your customary deductions for taxes, insurance and FICA--are eligible for garnishment, leaving you 75 percent of your paycheck. However, in the case of back taxes you owe the state or the IRS, bankruptcy creditors or child support, the legal garnishment limit is 50 to 60 percent of your disposable earnings, with an additional 5 percent if you are several weeks behind in support payments.

Garnishment Rules for Creditors

Make sure you can afford the payments before agreeing to that new car purchase.

In most cases, excluding the payment of child support to your state's enforcement agency, a creditor may not garnish your wages unless you have defaulted on a payment agreement. If you stop making payments on your vehicle or your credit card, the holder of your loan can go to court to get an order for garnishment. The creditor must then send you and your employer the proper paperwork prior to the start of the garnishment. This should include a Garnishment Exemption form in case you wish to challenge the funding source of the garnishment.

Exempt Income Rules

While earnings are most commonly garnished, creditors can garnish your bank accounts, your income tax refund and even your life insurance policy cash surrender amount. According to federal law, creditors cannot garnish certain income, including Social Security benefits, Supplemental Security income, Railroad Retirement, Veterans Assistance, State Industrial Insurance benefits, public assistance and unemployment compensation. However, certain creditors, such as Child Support Enforcement, may be allowed to garnish some of these. If you believe your income is exempt from garnishment, you must file a Garnishment Exemption claim form with the court.

References

• U.S. Department of Labor: Wages Garnishment
• Department of Education: Employers Handbook
• Balance Pro: Wage Garnishment