Wage garnishment, which is granted by a court order, is a debt collection method that is a last resort. When a debtor has unpaid debt that is ignored for some time, the courts may step in to require an employer to withhold, or garnish, a portion of each paycheck in order to pay off the debt.
Most debt will not end up in a wage garnishment situation for the debtor. Before wages can be legally garnished, the creditor must pursue legal action and receive a judgment in their favor from the court. But before a creditor can initiate legal action against a debtor, the debt must be at least 90 days old. Much of the debt that is 90 to 120 days old is sold to collections agencies rather than involved in a legal action.
If you owe a creditor a significant sum of money and you do nothing to pay either a portion or the full amount of your debt, there is a chance that the creditor could decide to pursue legal action. If the court rules against you and in favor of your creditor, your employer could be obligated to withhold a set amount of money from every paycheck you receive in order to pay back your creditor.
According to Title III of Consumer Credit Protection Act, there is a limit as to the percentage of your paycheck that could be garnished. You must be allowed to have money with which to pay your living expenses, and some deductions such as those for federal, state and local income taxes, unemployment insurance, and Social Security payments are protected from garnishment.
Garnishment is an embarrassing situation for many debtors, since their employee is notified about the debt situation. While it is unlawful for an employer to terminate an employee because their wages are being garnished, many debtors worry that their employer will question their responsibility in managing their personal finances.
Laws concerning wage garnishment vary by state, so it's a good idea to contact a professional to assist you in figuring out your options if you are threatened with garnishment. Some states prohibit garnishment unless the debt was incurred in a garnishment state; all states allow wage garnishment for unpaid child support and taxes.