What Does Wage Garnishment Mean for Financial Freedom?

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Creditors are known to use wage garnishment as a scare tactic to get consumers to make payments on their outstanding debts. Wage garnishment is most commonly seen with consumer debt, taxes, and student loans. Though this strategy can be rare, it is crucial to understand how wage garnishment can affect your long-term financial plan. New Era Debt Solutions breaks down the details of the tactic and what it means for achieving financial freedom.

What is wage garnishment?

Wage garnishment is when a court orders your employer to direct a portion of your paycheck to the creditors you owe. There are federal laws governing how much money a creditor can garnish your paycheck. According to FindLaw, “Private creditors, including consumer loans, credit cards and mortgages can withhold up to 25% of your disposable income.” Disposable income is the amount of income you have left after taxes and other charges have been deducted. It can be stressful to imagine a portion of your paycheck disappearing when it means your finances are at risk. Know that there are solutions and programs available to help you.

How can it impact financial goals?

Depending on how much income you earn, creditors may decide to sue in the event that it is likely they will be able to collect on the debts that they are suing for. If you are unemployed or not making enough money to cover your regular expenses, then creditors take that into consideration. Lawsuits are time-consuming and costly, forcing creditors to determine if the likelihood of collecting is worth the cost. Because wage garnishments are required to come with advanced notice, you can typically devise a strategy to keep your goals in check when you receive something from them.

Are there any exemptions?

There are certain types of income that are exempt from wage garnishment. These include social security, retirement savings, unemployment or disability benefits, and workers’ compensation. We do not recommend consistently checking your pay stubs and adding additional stress to an already challenging situation. Do some research, ask questions, and consult a professional in the event that a creditor tries to garnish your wages.

How can you stay on track to financial freedom?

There are a couple of things you can do to stay on track with your finances. First, you can pay the minimum monthly payment on your unsecured debt, so you do not avoid it completely. Note that this is an effective strategy for a shorter term, but you should consider interest rates and how your balance will be affected. Second, you can look into debt settlement programs to see if you are a good candidate.

Debt settlement programs do not protect you from wage garnishments or lawsuits, but they do help you negotiate your owed balance. Creditors are looking to recover as much of the balance as they can, which is why settling can be their best option.

Wage Garnishment FAQs

How is Wage Garnishment Regulated by Federal Law?

The federal laws that regulate wage garnishment include the Consumer Credit Protection Act (CCPA) and Title III of the Consumer Credit Protection Act, also known as the Federal Wage Garnishment Law. These laws establish the limitations and procedures for wage garnishment in the United States.

More specifically, Title III of the CCPA includes provisions of the federal law that protect employees from excessive wage garnishment and ensure that certain essential income is shielded from garnishment. It sets limits on the amount of wages that can be garnished and provides guidelines for the process of withholding and remitting garnished wages.

Additionally, various federal agencies, such as the Internal Revenue Service (IRS) and the Department of Education, have their own specific regulations and procedures regarding wage garnishment for specific types of debts, such as unpaid taxes or defaulted student loans.

Does the CCPA Provide Protection Against Discharge When Wages Are Garnished?

Protection against discharge is provided by the CCPA under Title III under the “anti-discrimination” & “anti-retaliation” provisions. These specific provisions prohibit employers from taking adverse employment action against an employee because of their garnished wages for a single debt.

Under Title III of the CCPA, an employer cannot fire, demote, or otherwise discriminate against an employee because of wage garnishment. This protection applies to a single wage garnishment for any debt, whether it is related to unpaid taxes, defaulted student loans, child support, or other types of debt subject to garnishment.

Start Your Journey to Financial Freedom

Are you looking to take the next step toward achieving financial freedom? Contact one of our friendly counselors at New Era Debt Solutions to learn more about the debt relief option that fits your needs and budget. We look forward to getting to know you and creating a plan designed just for you.