Wage Garnishment - What You Need To Know
Are your wages being garnished? Wage garnishment can occur because of a court order or judgment. It can also happen because of unpaid taxes, defaulted student loans, child support, and other issues. The key idea is that a portion of your paycheck is held back to make these payments.
Learn the facts about wage garnishments and how you can protect yourself:
1. Understand the federal laws. In most cases, a bank or creditor has to obtain a judgment in court before wage garnishment can start. You should be notified about the court order process.
· The law restricts how much can be taken out of your paycheck to pay creditors.
· The maximum limit is generally 25 percent of your paycheck, and this amount is taken after standard deductions such as regular taxes or health insurance. However, it can vary based on other factors. For example, you may lose 50 percent of your paycheck if you owe child support.
· Each state has its own rules and may have even lower maximum limits.
2. Wage garnishments and taxes. If you owe taxes, the IRS doesn’t need an official court order for wage garnishment. This is important to remember because the process is different for unpaid taxes.
· The amount that is garnished will vary, but the IRS uses the number of dependents to figure it out. In addition, your standard deduction plays a role in the final figure.
· State and local districts can also garnish wages for unpaid taxes.
3. Be aware of job security and protection. Your employer can’t fire you because of the wage garnishment and extra hassle of taking money out of your paycheck. This can’t be used against you at work.
· Laws are in place to protect you from losing your job during a wage garnishment.
4. Consider fighting a court order. If you don’t agree with the wage garnishment, then you have to use the court systems to fight it.
· You’ll have to present your case in court during a hearing and show that the garnishment is placing an unreasonable burden on you. You may also ask if you qualify for an exemption.
5. Student loans. If you have federal student loans, then a court order may not be necessary for a garnishment to start.
· If you are in default on your federal student loans, the garnishment can start without a court judgment. However, you have the option to start a repayment plan or ask for an exemption.
6. The role of bankruptcy. A bankruptcy may stop a wage garnishment, but it carries other consequences.
· After you file for bankruptcy, you get an automatic stay that puts a hold on garnishments.
· Creditors have to appear in court and ask that the stay be removed, so they can start the wage garnishments again.
· The automatic stay doesn’t apply to all types of garnishments. If you owe child support or alimony, then the stay doesn’t apply, and you’ll still have to pay a portion of your paycheck.
· It’s recommended that you notify your employer, sheriff’s department, and others about the bankruptcy. This will prevent miscommunication and other issues from appearing.
· You may be able to get some of your previously garnished wages back during a bankruptcy. This usually applies to a time period of 90 days before the bankruptcy is filed. You may have to file additional paperwork to get the wages back.
A wage garnishment can have a serious impact on your income and lifestyle. Even if you do owe the money that is being garnished, you still have some legal protections. Learn your rights so you can use them to your advantage.
-Tiffany M. Vaughn, CPA
Tiffany Vaughn is a Certified Public Accountant and owner of Cents Savvy, a financial services company. Cents Savvy was founded in 2016 in Belleville, Michigan. Cents Savvy offers financial planning, credit counseling, credit repair, credit rebuilding, credit repair services, tax preparation, small business accounting, debt counseling, tax planning, personal budgeting, personal finance, and insurance services. Cents Savvy’s goal is to become your Top Financial Resource! From saving money for retirement, or getting the biggest tax refund, to building and fixing your credit, Cents Savvy will assist you in achieving your financial goals.