Garnishment
Garnishment is a legal procedure through which a portion of a person’s earnings or assets is withheld by an employer or financial institution for the payment of a debt. This typically occurs when a debtor has been unable or unwilling to pay their debt voluntarily.
Most garnishments are court-ordered, which means that a creditor has sued the debtor, won a judgment, and then obtained a garnishment order. Some types of debts, like taxes, child support, or student loans, might be subject to garnishment without a court judgment.
In the case of wage garnishment, the employer is legally obligated to withhold a certain amount of the debtor’s wages and send it directly to the creditor. The exact amount that can be garnished might depend on the type and amount of the debt, as well as state and federal laws.
It’s important to note that there are legal protections in place to help ensure that debtors are not left without sufficient income to cover their basic needs. Federal law, for instance, limits the amount of income that can be garnished in a week to the lesser of 25% of disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum hourly wage.
In the case of a bank garnishment, a creditor may be able to seize funds directly from a debtor’s bank account.
Garnishment can have significant impacts on a debtor’s financial situation and credit score, so it’s often seen as a measure of last resort for creditors trying to collect a debt.
Example of a Garnishment
Let’s imagine John Doe, who has a credit card debt of $10,000 that he has not been able to pay. After multiple attempts to collect the debt, the credit card company takes John to court. The court rules in favor of the credit card company and orders a wage garnishment to repay the debt.
John’s employer is notified of the garnishment order and is legally obligated to comply. John earns $1,000 per week after taxes and other deductions (his disposable income). According to federal laws in the United States, the maximum that can be garnished is the lesser of 25% of disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum wage.
Assuming the federal minimum wage is $7.25, 30 times that amount would be $217.50. John’s disposable earnings of $1,000 are greater than $217.50 by $782.50. Therefore, 25% of John’s disposable income, or $250 (whichever is less), can be garnished each week.
The employer will deduct this amount from John’s wages each pay period and send it directly to the credit card company until the debt is paid off. John’s take-home pay is reduced by the garnishment amount until the debt is fully repaid.
This is a simplified example and the exact process and amounts may vary based on specific laws and regulations, the type of debt, and other factors. For accurate advice tailored to a specific situation, it’s always a good idea to consult with a financial advisor or legal professional.
