Can a Collection Agency Garnish Wages?

Wage garnishment is a legal process through which a portion of an individual’s earnings is withheld by an employer and directed toward the payment of a debt. While collection agencies can pursue wage garnishment, this action is subject to specific legal conditions.

Legal Requirements for Wage Garnishment

For most consumer debts, such as credit card balances, medical bills, or personal loans, a collection agency cannot directly garnish wages without a formal court order. A creditor must first initiate a lawsuit against the debtor in court. Should the court rule in favor of the creditor, a judgment is issued, formally establishing the debt and the creditor’s right to collect it. Following this judgment, the creditor must then obtain a separate garnishment order from the court. This order specifically authorizes the withholding of wages to satisfy the judgment, marking a distinct phase in the collection process.

Debts Subject to Garnishment

Different types of debt carry varying rules regarding their susceptibility to wage garnishment. Standard consumer debts, including credit card debt, medical bills, and personal loans, almost universally require a court order for a collection agency to garnish wages. Federal student loans, for instance, can be subject to administrative wage garnishment by the Department of Education or its authorized agents without a court order. Similarly, obligations like child support and alimony are typically enforced through court-ordered wage withholding, often following different guidelines and limits. The Internal Revenue Service (IRS) also possesses the authority to issue a levy on wages for unpaid federal taxes without first obtaining a court judgment.

The Wage Garnishment Procedure

The process leading to wage garnishment typically begins with a creditor filing a lawsuit. The debtor must receive proper legal service of the lawsuit documents, as ignoring these documents can lead to a default judgment, where the court rules in the creditor’s favor. Once a judgment is secured, the creditor can then apply for a garnishment order from the court. This order is subsequently served to the debtor’s employer, instructing them to withhold a portion of the employee’s wages. The employer has a legal obligation to comply with this order, deducting the specified amount from the employee’s pay and remitting it to the creditor or court.

Federal and State Protections Against Garnishment

Federal law provides important protections against excessive wage garnishment through the Consumer Credit Protection Act (CCPA). This act limits the amount garnished from an individual’s disposable earnings. Disposable earnings are wages remaining after legally required deductions, such as federal, state, and local taxes, and Social Security contributions.

For consumer debts, the CCPA restricts garnishment to the lesser of two amounts: 25% of an employee’s disposable earnings, or the amount by which their disposable earnings exceed 30 times the federal minimum wage (currently $7.25 per hour). For example, if weekly disposable earnings are $217.50 ($7.25 x 30) or less, no garnishment can occur for these types of debts. Different limits apply to debts like child support or alimony, which can be garnished up to 50% or 60% of disposable earnings.

Beyond federal statutes, states can enact their own laws that offer additional or stricter protections. These provisions cannot provide less protection than federal law. Common state protections include “Head of Household” exemptions, which shield a greater portion of income for individuals supporting a family, or full exemptions for certain types of income such as Social Security benefits or disability payments. While Social Security benefits are generally protected from most private creditors, they can be garnished for federal taxes, federal student loans, or child support.

Actions to Take When Facing Garnishment

Receiving a notice of a lawsuit or a wage garnishment order requires immediate and careful attention. It is generally advisable to seek legal counsel promptly, as ignoring legal notices can result in financial consequences. Understanding the specific claims and legal deadlines is an important first step.

Individuals may have options, including disputing the debt if there are valid legal grounds, such as incorrect amounts or identity theft. Another option is filing a claim for exemptions with the court, asserting that a portion of income is protected under federal or state laws. Negotiating a payment plan or settlement directly with the creditor or collection agency can also be a viable alternative to garnishment. In some circumstances, considering bankruptcy may offer a way to stop wage garnishments.