Can Creditors Garnish Self-Employed Earnings?
What is a Wage Garnishment?
A wage garnishment is an order from a court or government agency requiring an employer to withhold earnings from an employee’s paycheck and send it directly to a creditor. The IRS can also initiate wage garnishments for unpaid tax bills, while state governments can do so for outstanding state debts.
Garnishments are a common way to collect debts owed to creditors and can be put on bank accounts, wages, and even lottery winnings.
Can a 1099 Employee Be Garnished?
If you are in a situation where your salary or assets are being garnished, the question you may ask is “Can a 1099 employee be garnished?” It’s hard enough having the burden of debt on your shoulders, but the process of having your income and assets taken to cover those debts can make it harder to keep your finances in check in your daily life.
Creditors cannot garnish the wages of independent contractors and freelancers, because wages are technically earnings paid to an employee by an employer. However, if you are self-employed, this is not cause to relax. Creditors – whether they are collecting credit card balances, student loans, or some other form of unsecured debt – can still file a claim against personal property or obtain approval for a non-earnings garnishment.
Creditors cannot garnish the wages of independent contractors and freelancers, because wages are technically earnings paid to an employee by an employer. However, if you are self-employed, this is not cause to relax. Creditors – whether they are collecting credit card balances, student loans, or some other form of unsecured debt – may still be able to file a claim against personal property or obtain approval for a non-earnings garnishment.
Can You Get Around Wage Garnishment?
A wage garnishment is an order from a court given to an employer, ordering them to withhold money from an employee’s paycheck and hand it over to pay down debt. The rules around garnishment are complicated (and vary by state), but there are steps you can take if you find yourself staring down one. Whether you fall under federal or state law, what happens when you get your first notice. Remember, just because it can happen doesn’t mean it will.
Differences between non-earnings garnishments and traditional wage garnishments
Non-earnings garnishments differ from wage garnishments in a few ways. When a creditor wins the right to garnish your wages, federal and state laws impose a limit to the amount a creditor can deduct from your weekly earnings. Generally, the limit is no more than one-quarter of your disposable income – earnings minus required deductions – or income in excess of 30 times the minimum wage. Whichever amount is less. Traditional wage garnishments are also continuous, meaning the duration of garnishment may continue until your debt is paid off or a legal withholding limit has been reached.
With non-earnings garnishments, a creditor can seize one-hundred percent of an expected compensation, such as sales commissions, contract payments, or receivables. However, this is a one-time seizure of income. Non-earnings garnishments are not ongoing like wage garnishments. While traditional wage garnishments are limited by law to disposable income from paychecks, creditors seeking compensation through a non-earnings garnishment can levy your bank accounts, income received from rental properties, and other sources.
Can non-earnings garnishments occur without warning?
Not quite. While these two forms of wage garnishment are fundamentally different, the law still requires creditors to follow a certain process in order to collect on debts through garnishment. This includes filing a claim, winning a judgment, and giving advanced notice.
What is the Most Someone Can Garnish from Your Paycheck?
It varies by state, but creditors cannot garnish more than 25 percent of your wages in most states. In some instances, however, they can take up to 50 percent if you have been repeatedly and willfully late on your payments.
How much Can Your Bank Account Be Garnished?
A garnishment is an order of the court that directs your employer to withhold a certain amount of money from your paycheck and forward it to your creditor. The level of withholding depends on what kind of debt you owe and how much you earn, but generally speaking, federal law dictates that creditors can’t take more than 25 percent of what you make above minimum wage.
Are you considered an employee or an independent contractor?
While state laws may differ regarding the definition of “employee”, the internal revenue service (IRS) generally regards independent contractors as individuals that control the method and means of how a job is to be completed, even if an external entity controls the result. Certain white-collar professionals, including doctors, lawyers, and engineers, freelance writers, artists, commission-only agents, and tradespeople, such as plumbers and landscapers, are common types of non-employees.
To determine if you are an independent contractor or an employee, ask yourself these basic questions:
- Do you control your schedule, work method, and work location?
- Do you pay your own state and federal taxes, including Social Security?
- Do you pay for your own supplies and expenses, such as a work phone, computer, or internet?
Of course, determining whether you are classified as an employee or independent contractor depends on individual circumstances. If you are unsure or if the relationship is complicated, you should seek professional advice.
Creditors have a deep bag of collection tactics from which to pull. As a consumer, some of these methods can be quite intimidating if you don’t know what your rights are – and, yes, even if you owe money, no matter the amount, you are still afforded protections under certain federal laws, including the Fair Debt Collection Practices Act (FDCPA) and the Consumer Credit Protection Act (CCPA).
Experienced Debt Help is Just a Call Away
If you have more unsecured debt than your budget can handle, please contact New Era Debt Solutions to see if debt settlement is the right option for you. You can also fill out the form here to get a free debt analysis.