Can Credit Card Companies Garnish Your Wages?
A common tactic creditors use to intimidate people into making a payment right then and there is threatening to garnish wages. So, can credit card companies garnish your wages? The short answer is yes. However, actual garnishments are rare and must come with advanced notice.
What is Wage Garnishment?
Wage garnishment is a legal process that involves the withholding of an employee’s pay by their employer to repay a debt via court order. The most common reasons why wages are garnished are to repay debts for things such as child support payments, student loans, tax levies, and other consumer debts.
While creditors seeking payment of back taxes, child support, and student loans do not need court approval to garnish your wages, credit card companies or collection agencies must first file a lawsuit and obtain a judgment. If they receive the go ahead, they still need to take additional steps to implement the action, including sending a letter to the appropriate law enforcement officer and your employer.
Is there a limit to how much a creditor can garnish my paycheck?
According to federal law, a creditor can garnish no more than 25 percent of your disposable income or the amount your weekly take-home earnings exceed 30 times the federal minimum wage. Whichever is less.
Disposable income is your take-home pay after required deductions, including federal and state taxes, state unemployment insurance, Social Security, and compulsory retirement deductions such as 401k contributions.
Disposable income is calculated, however, with voluntary payments such as health and life insurance and savings plans – because, you know, hopefully life doesn’t happen.
To demonstrate: Federal minimum wage is $7.25 per hour. Thirty times the federal rate is $217.50. Let’s say your net income after compulsory deductions is $500 per week, making 25 percent of your disposable income $125. The amount your income exceeds 30 times the federal rate is $282.50 ($500 – $217.50). Based on these calculations, creditors could take no more than $125 from your weekly paycheck.
What income is exempt from wage garnishment?
The types of income that are generally protected from wage garnishment are social security, retirement savings, unemployment and disability benefits, and workers’ comp.
Will creditors sue me if I’m unemployed or making little to no money?
Creditors generally weigh the likelihood of collecting against the cost to collect via legal means. If the cost to sue is greater than the probability of collecting your debt, they will probably forgo a lawsuit. Alternatively, if they determine you make enough money or are likely to make a steady income in the future, they will probably sue and may pursue wage garnishment. Of course, legal action is entirely up to the creditors’ discretion, meaning you should never just assume you’re safe from a lawsuit.
How can you avoid wage garnishment?
Paying the monthly minimum. If this is all you can afford on your credit card balances, this is likely the best short-term option for you. Just don’t forget to consider the amount of interest you will pay if you choose this as your long-term strategy. You could end up paying more than twice what you originally borrowed.
Bankruptcy. When you file for bankruptcy, most unsecured debts are forgiven with a few exceptions, including student loans, taxes, child support, and alimony.
Debt Settlement. While entering a debt settlement program is not a guarantee of protection against lawsuits or wage garnishment, most creditors are willing to negotiate because they want to recover as much of the outstanding balance as possible. And if you’ve gotten to the point where debt settlement is the best option for you, circumstances outside of your control have probably prevented you from making regular payments. In other words, creditors just want to cut their losses.
Whatever strategy you choose, never ignore your debts!
Sometimes life gives us more than we can handle, but that doesn’t mean we can ignore our obligations. Just remember that no company, no person, can seize your paychecks without court approval. Even then, you must be given advanced notice of such court actions through formal documentation.
If creditors are threatening you with legal action when they have no intention of following through or legal license to do so, they are breaking the law. Even those who cannot afford to pay their debts have rights. Don’t let creditors intimidate you.
If you want to take control of your finances, please contact our seasoned negotiators at New Era Debt Solutions. The time to act is now!
To get started, fill out our online form below for your free debt analysis to see if debt settlement is the right option for you.