Wage garnishment is a common collection practice taken by creditors to collect debt. Before a creditor can take money out of a borrower’s account, he must file a lawsuit against the borrower and obtain a writ of garnishment. A writ of garnishment is a court order that allows the creditor to take money out of the borrower’s bank account or to file a lien against his assets. Creditors rarely file a lien unless the debt amount is very high and they can wait until the debtor sells the asset to collect the debt.
Wage garnishment is a quicker way to get the money from a debtor. Creditors resort to wage garnishment because it is easy. Borrowers provide their income and employment information when they fill out a credit application. All a creditor needs to do is to forward the court documents to the debtor’s employer. The employer must comply with the court order and withhold the funds from the debtor’s paycheck until the debt has been paid in full.
How much can a creditor take each pay period? By law, he can take as much as 25 percent of the wages. However, he must leave 30 times the current minimum wage for the debtor. Most states follow the federal laws when it comes to garnishing wages. However, in some states, the court can reduce the garnishment amount if it creates a financial hardship for the debtor. California is one of the few states that allows debtors to contest wage garnishment in court.
Child support collection agencies often resort to wage garnishment to collect the past-due payments. Occasionally, it may take time to track down the employer of the non-custodial parent because they may often switch jobs to avoid making payments. Collection agencies can take as much as 50 or 60 percent of the disposable earnings for past-due child support.
Wage garnishment is reported on the debtor’s credit history and will affect his score for seven years. Having an active garnishment may prevent him from obtaining credit because lenders perceive this as a high risk. To avoid wage garnishment, negotiate a repayment plan with the creditor before he takes the extreme measures to collect the debt.