If you have defaulted on payments on debts owed to others, creditors may take legal action against you. One method that might be used to collect funds is a wage garnishment. Also referred to as an Earnings Withholding Order, a wage garnishment allows employers to hold a portion of your income and pay it directly to the creditor as a method of paying off your debts. Another common option pursued by creditors is a bank levy. In contrast to a wage garnishment, a bank levy is placed on your bank accounts and prevents you from being able to withdraw funds. Instead, creditors will be able to withdraw funds to make up for any outstanding balances.
WHEN WILL I RECEIVE A WAGE GARNISHMENT?
When you borrow money from a creditor, you are expected to make payments over time as agreed upon when the loan and/or credit was established. If you fail at making these payments as scheduled, creditors may attempt to collect on these debts by seeking assistance from the Court. In order to begin a wage garnishment, creditors must file a lawsuit against the debtor. In order for the creditor to pursue the garnishment, the Court must side with the creditor and issue a money judgment in favor of them. A money judgment states that the creditor filed a lawsuit with the Court and obtained permission to collect money owed to them. The money judgment lists any relevant information including the amount of money owed to the creditor. Once this money judgement has been issued, the creditor can take further action if collection attempts are still unsuccessful. The next step is to receive a Writ of Execution. A Writ of Execution orders the Court to order law enforcement to pursue collection attempts. In this case, A Writ of Execution orders the Sheriff to obtain the debtor’s possessions. From here, the creditor can ask that the Court allow for a Wage Garnishment. Once enacted, the employer will immediately begin to withhold wages.
Not all debts will require creditors to obtain a money judgment before pursuing a wage garnishment. One example is tax debt. If you have failed to pay your taxes, the government may order for a collecting agency to place an Earnings Withholding Order on your paycheck without receiving a money judgment from the Court. The amount withdrawn varies depending on how many people you are financially dependent for. When the IRS notifies you regarding the wage garnishment, they will enclose the total amount that will be garnished.
Another example is for debt incurred through defaulted child support payments. Child support payments are able to work around receiving a prior money judgment because have a type of wage garnishment already in their contract. This is known as an Income Deduction Order. In this situation, typical wage garnishment rules do not have to be followed and up to 50% of your disposable income may be withheld. Additionally, if you have defaulted payments for 12 weeks, another 5% may be garnished.
Additionally, student loan debt does not require creditors to receive a money judgment order before collecting wages from employers. If you have defaulted on payments for a minimum of 270 days, creditors can contact employers to begin withholding wages. The amount withheld varies. If the US Department of Education is responsible for the garnishment, employers will be able to withhold a maximum of 15% of your disposable income.
IS THERE A LIMIT TO HOW MUCH OF EACH PAYCHECK CAN BE GARNISHED?
Once the Wage Garnishment is enacted, your wages will continue to be garnished until the debt is paid off entirely. However, there is a maximum that can be taken from each paycheck to prevent you from incurring other debts. Wages can be garnished in two ways. The first is up to 25% of your disposable income. Disposable income is the amount of money left over after your necessary expenses have been deducted. The other option is based on how much your disposable income is greater than 30 times than the hourly minimum wage.
For example, if you earn $1200 a week and have $900 in disposable income. By using the first method, your employer may withhold up to $225 each week. Alternatively, since California’s minimum wage is $13, your employer may withhold up to $410 each week ($800 - $390). Since the first method yields a lesser amount, this will be the method used, and your employer may garnish no more than $225 of each paycheck.
CAN I STOP THE GARNISHMENT ONCE IT HAS BEEN PLACED?
If you are issued a wage garnishment, you may be able to stop it from occurring. This can be done in the following ways:
- Negotiation: If you have received a wage garnishment, you can attempt to stop it by contacting the creditor. Instead, you may be able to develop an alternative, such as a payment plan, to take place of the garnishment. However, this generally does not work in favor of the debtor since creditors have most likely exhausted all other methods at this point.
- Filing an Exemption: California allows residents to attempt to reduce or remove their wage garnishment. By filing an exemption with the Court, you must show that the money taken through the wage garnishment will put you in a position that is worse off for you and your family. Exemptions are designed to protect certain assets and make it possible for to continue having access to basic living expenses. These exemptions vary state to state. One example of a commonly filed exemption is the Head of Household Exemption. If you are earning more than 50% of your home’s finances, you can be seen as the head of the household and convince the Court that your wages are necessary for you and your family. If granted, your wage garnishment may be adjusted or potentially removed altogether. If the Court does allow this exemption, you must continue to demonstrate that your income is being used for the reasons provided.
- Challenge the Judgment: Similar to filing an exemption, you may be able to challenge the judgement and ask that the Court overturn their order. This works best in cases where the wage garnishment was wrongly placed, and the creditor never informed you of the judgement. You can choose to file an Objection to Vacate Judgment, and the Court may grant it, preventing the Wage Garnishment. However, it is possible for the creditor to simply repeat the process and properly provide you with notice. This may not always be the best option considering you may end up wasting money and not getting anywhere. If you do decide to pursue the objection, your garnishment papers will provide you with more information on how to do so. Once completed, the Court will hold a hearing to determine whether or not your objection will be considered. If it is rejected, then the wage garnishment will continue as previously determined.
FILING FOR BANKRUPTCY
If your finances have taken a hit and you cannot afford to have a wage garnishment placed on your paycheck, you may want to consider filing for bankruptcy. By filing for either Chapter 7 or Chapter 13 bankruptcy, you will be protected from receiving a wage garnishment thanks to the Automatic Stay. As per 11 U.S.C. § 362, the Automatic Stay protects bankruptcy filers from creditors’ actions during their bankruptcy relief. Even if your wages have already began being garnished, you will still be protected under the Automatic Stay. Once the Court has received and processed your filing, the Automatic Stay will be enacted and creditors, the involved Sherriff’s office, and your employer will all be notified that you have filed for bankruptcy. The Sherriff’s office will release the garnishment and notify your employer that they must return to paying you in full. If the wage garnishment was placed up to 90 days prior to your bankruptcy filing, the Court may allow creditors return the money garnished during this period. If creditors fail to follow the rules set through bankruptcy relief, you may consider speaking with your creditor and notifying them that you have filed for bankruptcy. In most instances, creditors may have made a mistake in collecting and will return the money accidentally garnished. However, if they continue to do so, you should inform the Court. The Court may require the creditor to pay a penalty.
The goal of a Chapter 7 bankruptcy is to complete your filing and receive a discharge. Once this discharge has been received, you will no longer be required to pay off your dischargeable debts. Dischargeable debts are those that do not have any form of collateral backing them. Two of the most common examples are credit card debt and debts incurred through medical costs. In order to get to this point, your bankruptcy trustee will liquidate all unexempt assets and use the money earned to pay back creditors. Once all nondischargeable debt has been paid off, your case will dismissed, and you will receive your discharge. Upon receiving a discharge, your wage garnishment may be removed.
Alternatively, a Chapter 13 filing utilizes a repayment plan to help you receive your discharge. Your trustee will authorize a repayment plan that outlines what payments you must make, who they will be paid to, when they must be paid, and for how long these payments will occur. Upon completion of the plan in 3 to 5 years, your dischargeable debts will be wiped out and you will receive your discharge. With a Chapter 13, you will still be responsible for your owed debts, but instead of a wage garnishment, you will make payments through your repayment plan.
While filing for bankruptcy and utilizing the Automatic Stay can provide you with great protection from creditors, it cannot protect you in every situation. As previously mentioned, debts such as child support do not require the creditor to gain permission before administering the wage garnishment. The Automatic Stay also cannot provide you protection when dealing with child support debt. However, if you file a Chapter 13, all garnishments will be prevented since you will still be required to make payments through your repayment plan.
AFTER THE WAGE GARNISHMENT HAS BEEN ISSUED
Once a wage garnishment has been enacted against you, you will begin receiving a less amount than you normally would. It is important that you pay attention to this and make adjustments accordingly to make sure that you do not default on any other debts. For example, if your employer is withholding wages, you may want to hold off on purchasing the new car you have had your eye on for the time being.
A common question regarding wage garnishment is “What happens if I lose my job?” If you a creditor has issued a wage garnishment, your employer cannot fire you. If they do so, they will be breaking federal law. The Consumer Credit Protection Act (CCPA) was enacted to prevent this from happening. If your employer violates the CCPA, they may be required to reinstate your employment and return the wages you did not receive during this time of wrongful unemployment. However, if you have multiple creditors pursuing wage garnishments, you are no longer protected and could risk losing your job.
HOW CAN WE HELP?
If you are worried that creditors may pursue a wage garnishment and prevent your employer from paying you in full, contact Sacramento Bankruptcy Lawyer today. Attorney Pauldeep Bains has worked with clients throughout the years to ensure that they will not be taken advantage of by creditors. Mr. Bains will walk you through your options and prevent you from receiving a wage garnishment.
We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.