Garnishment

Garnishment refers to the legally mandated process of withholding money from an individual’s paycheck to repay a debt they owe. Usually, this is the last resort that an entity takes to recover the amount due to them if an individual does not respond to other payment requests in time.

Two types of garnishments can take place — non-wage and wage. As a result of this process, a debtor has a lower disposable income. Moreover, their credit score drops significantly. The collection of various kinds of borrowings takes place through this method. Some examples are credit card debt, student loans, unpaid income tax, child support, etc.

• Garnishment refers to withholding one’s paycheck to pay a creditor. One can garnish earnings, including salary, hourly wages, commissions, etc.
• Garnishment proceedings aren’t necessary for government entities like the Internal Revenue Service to garnish someone’s wages. It is of two types — wage and non-wage.
• There are certain limits on the amount that one can garnish. For example, the maximum limit for a student loan is 15% of the debtor’s disposable income.
• The third party who has to deduct a portion of the debtor’s paycheck or any amount from their bank account is the ‘garnishee.’

Garnishment refers to the process that an entity might resort to for taking a part of their debtor’s paycheck or money directly from their bank account to recover the money owed to them legally. It can occur only when a court gives a garnishment writ, instructing a third party owing money to the debtor to pay some or all the money to the plaintiff or creditor instead of the defendant or debtor. This third party is known as the ‘garnishee.’

The third party is usually the defendant’s employer, who receives instructions requiring them to withhold a specific percentage of the employee’s income until the latter repays the debt in full. Such earnings can include commissions, hourly wages, salary, bonuses, etc. If an individual with debt wants to avoid this process, they can talk to the creditor or challenge the court order.

In most cases, the creditor opts for this method to recover the money when the debtor is actively ignoring the repayment or is refusing to communicate. Before garnishment occurs, the creditor has to send a garnishment notice to the party owing money. The debtor can respond to the notice and try to find a solution if they want. However, if the creditor does not wish to negotiate, they can plead their case in court with the hope of reaching terms that are not as extreme.  

Wage garnishment requires employers to legally transfer a certain percentage of their employee’s paychecks to a party from whom the latter borrowed money. As a result, the debtor (employee) does not receive the money. Usually, the employer must inform their employee of the total amount withheld.

Note that per federal law, it is illegal for employers to fire an employee to avoid processing such payments. Moreover, employers cannot take disciplinary actions against their employees for the legal proceedings. It is the responsibility of the garnishee to inform the court if the employee leaves the organization.

This refers to the court order instructing a bank or employer to withhold a certain amount from the judgment debtor’s bank account or paycheck to pay the judgment creditor. Ignoring a garnishment writ can have severe consequences. For example, in most United States states, the offending third party, i.e., the garnishee, has to pay the entire amount of the debtor’s borrowings.

Also, government entities, for example, the Internal Revenue Service (IRS), can recover the money without initiating garnishment proceedings.

The maximum amount of an individual’s wages that one can garnish varies and usually ranges from 15-65% of their disposable income. The limit is 65% for child support and 15% for student loans. This cap ensures that the defendant has sufficient funds to meet their daily requirements. If the debtor does not utilize the wages to maintain a family or an individual, the lower of the following amounts is the limit:

• 25% of the disposable income.
• The difference between 30 times the federal minimum wage and the individual’s disposable income.

Let us look at some garnishment examples to understand the concept better:

Example #1

Between 2015 and 2020, nonprofit hospitals garnished thousands of New Yorkers’ wages for medical debt, per a Community Service Society report. Roughly half of these hospitals sued over 53,100 patients. Most of these patients fulfilled the eligibility criteria for state Hospital Financial Assistance law. Thus, the hospitals should not have filed a lawsuit in the first place.

The New York State Senate and Assembly passed bills to eliminate such collection practices. However, New York Governor Kathy Hochul is yet to sign them. 

Example #2

Suppose Sam Morris has not paid taxes worth $10,000 over a certain period. The IRS can instruct Sam’s employer, XYZ company, to remit a portion of Sam’s wages for a specific duration until they recover the entire amount.

This article has been a guide to Garnishment and its meaning. Here, we explain wage garnishment writ, proceedings, order, notice, and limits with examples. You can learn more from the following articles -

• Payroll
• Loan
• Credit History