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As a child, I often overheard adults talking about financial jargon, which made me panic. "How could I possibly understand what these terms mean?" I would wonder. I clearly remember reading the biography of U.S. gymnast Dominique Moceanu and how her family had to take out a second mortgage on their home to cover her training expenses. At the time, I didn’t even understand what a mortgage was – let alone a second mortgage. That seemed serious.
This post was first published on Ready For Zero.
I became convinced that adulthood must be extremely difficult if these complex terms were such a big part of your vocabulary. Being an anxious child, I was frustrated that these things weren’t taught in school. "How could I ever manage adulthood if I don’t learn this stuff?" I thought to myself.
Little did I know that years later, people would push for financial literacy in schools, recognizing that many adults are unprepared for financial responsibilities. Until this education becomes more widespread, we're addressing some key terms and ideas on our blog. Today’s topic: wage garnishment.
What Is Wage Garnishment?
First, let’s define wage garnishment:
A wage garnishment is a legal or fair process where part of a person’s earnings is withheld by their employer to pay off a debt. Most of the time, garnishments are authorized by a court order. —
United States Department of Labor
In simpler terms, if you fail to meet certain financial obligations, you could be sued for the outstanding amount. If you're unable to pay it in full right away, a portion of your wages will be taken out to cover the unpaid balance. This can be quite unsettling, especially if you’re already struggling to make ends meet! So, the big question is, what kinds of defaults can result in wage garnishment?
Wage Garnishment and Your Debt
The short answer to which of your defaulted debt accounts can be garnished is: all of them. This includes credit card debt, student loans, mortgages (and foreclosures), repossessed vehicles, taxes, and medical debt.
The good news is that the process leading to wage garnishment has several steps, giving you some warning and time to take control of the situation. Here’s a basic timeline:
1. You miss a payment—or perhaps even several—and your lenders reach out to let you know you’re past due. If this continues, they’ll take further action to recover the unpaid amount:
If you default on a credit card debt, it may be sold to a debt collection agency.
If you default on medical debt, the debt could be sold to a collection agency.
If you default on a mortgage, your lender might move directly to wage garnishment or initiate foreclosure proceedings. If they foreclose on your home and sell it for less than what you owe, they might try to garnish your wages for the “deficiency,” or the difference between the sale price and your debt.
If you default on a car loan, the lender could repossess your vehicle. Similarly, if they sell the car for less than you owe, they may attempt to garnish your wages for the deficiency.
If you default on student loans, the loans could be sold to a collection agency. If they remain unpaid, the government may start withholding your taxes to cover the debt.
If you default on tax debt, you’ll face penalties and interest on the unpaid amount. The IRS might also seize your refund, claim your social security payments, and even place a lien on your property. Unpaid tax debt can eventually lead to jail time. This is a serious issue with many consequences, so it’s crucial to address it promptly.
2. If you continue to ignore the lender’s bills and calls, and the steps mentioned above don’t resolve the issue, the next step is for the lender to file a judgment against you in court. After a judgment is entered, you’re given a set time to respond. You can contest the judgment, try to settle with the lender, or file for bankruptcy. If you don’t take any action, wage garnishment may follow. *Note: Debt owed to the IRS or the Department of Education can be garnished without a court order – meaning you could lose wages with much less warning. If you're defaulting on either of these debts, it’s essential to act quickly—requesting a payment plan if necessary to get back on track.
Even if you haven't been fully aware of how serious your debt situation has become, once a judgment is handed down, you still have one final chance to act before wage garnishment starts. If you're unsure of what to do next, you might want to consider seeking help from a lawyer or a credit counselor. However, keep in mind that you can always try to work directly with your lenders to negotiate. Wage garnishment is not only time-consuming but also costly for them, so this could be your best opportunity to settle the debt before things escalate.
What Happens If You're Unemployed?
If you’re unemployed and have defaulted on your debt, you're not exempt from the possibility of having your funds garnished. Your bank accounts could also be subject to garnishment. This process could lead to your account(s) being frozen for weeks, or even months, and may result in them being emptied out entirely.
Laws That Protect You from Wage Garnishment
If you are already experiencing wage garnishment, there are at least two laws that offer you some protection. Below, I’ll break down and explain these two key laws to help you understand your rights:
There Are Limits on Wage Garnishment
Laws governing garnishment place restrictions on how much of your earnings can be taken. The United States Department of Labor provides the details on these limits:
The portion of your earnings that can be garnished is determined by your 'disposable earnings,' which is the amount left after mandatory deductions are made. These deductions include federal, state, and local taxes, as well as the employee's share of State Unemployment Insurance and Social Security. It also includes legally required contributions to employee retirement systems.
Any deductions not required by law—such as voluntary wage assignments, union dues, health and life insurance, donations to charities, purchases of savings bonds, voluntary retirement contributions, or payments for payroll advances or purchases from employers—cannot be subtracted from your gross earnings when calculating disposable earnings under the CCPA.
The law also sets a cap on the amount that can be garnished in a given workweek or pay period, no matter how many garnishment orders the employer receives. For standard garnishments (i.e., those not related to child support, bankruptcy, or state or federal taxes), the weekly garnishment amount cannot exceed the lower of two figures: 25 percent of the employee's disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage (currently $7.25 per hour).
For instance, if your weekly earnings are $217.50 or less, you won't be subject to garnishment. However, if you earn more than that amount, only the wages exceeding $217.50 are eligible for garnishment.
Your Employer Cannot Terminate You Over a First Garnishment
Your employer will be notified of the garnishment, as they are responsible for coordinating with the court to implement it. However, if this is your first time experiencing garnishment, your employer is legally prohibited from firing you because of it. Unfortunately, this protection no longer applies if you've been garnished for two or more debts.
Take Action Immediately if You’ve Defaulted on Your Debt
Falling behind on debt can be overwhelming. Even a single missed payment can feel like you’ll never catch up. Don’t let this obstacle discourage you—no matter how far behind you are. The fact is, no situation is beyond repair. The sooner you take action, the more favorable your situation will be.
Images courtesy of Mauricio Balvanera, Morgan, and Tulane Public Relations.
