Wage garnishment is a technique frequently used to ensure that a debtor pays off his or her debts. If the debtor is gainfully employed and earns an income above the poverty line, his employer may be called on to withhold, or garnish, a percentage of wages to pay off unpaid debts. To protect the interests of the creditor, the employer, and the debtor, there are many wage garnishment rules that exist on both a regional and federal level. Some of the issues wage garnishment rules cover include how much money can be taken, how it must be split between debtors, and for what reasons garnishment is allowed. Additionally, wage garnishment rules and law include stipulations on the rights and responsibilities of all parties.
There are many types of debts that can be paid through wage garnishment. Though it may change depending on the jurisdiction, most wage garnishment rules allow the practice for defaulted loans of almost any type, child support, alimony, or certain tax levies. Some creditors threaten wage garnishment illegally in order to frighten a debtor into repaying, such as instances when a loan payment is late but the loan is not yet in default. It is important to study the applicable state and federal laws to determine if garnishment threats are realistic.
How much may be taken out of a paycheck is an important part of all wage garnishment rules. Most laws require that garnishment may be only taken out of disposable income, meaning income beyond what is necessary to pay for basic needs such as rent and food. Income above this level may be garnished, but only to a point. For most debts, garnishment can only apply to about 25% of disposable income; in cases of spousal or child support, the amount allowed is generally much higher.
Employers have many responsibilities when it comes to wage garnishment, as it is through their payroll that the proper amount is deducted and sent to the right creditor. In most regions, it is illegal to fire an employee because his or her wages are being garnished. Additionally, if a debtor has multiple debts, it is the employer's job to sort out the priority of the debts and pay each accordingly. Each region has different standards regarding garnishment prioritization; failure to follow them may result in legal proceeding against the employer.
In addition to having a living wage that is untouchable, a debtor may have several types of accounts that cannot be used for the forced payment of debts. In most areas, Social Security, retirement accounts, and disability or health care accounts cannot be garnished. Interest or investment earnings from retirement accounts may be factored into income levels, but the principal account itself is generally not available for collection.