Can a Credit Card Garnish Your Wages?
Understand the legal process credit card companies must follow before they can garnish your wages or seize assets.
When facing mounting credit card debt, many individuals worry about the possibility of their wages being seized. It is a common misconception that credit card companies can immediately garnish earnings once an account becomes delinquent. Understanding the legal framework surrounding debt collection is important, as specific steps must occur before a creditor can take such an action.
The Requirement of a Court Judgment
A credit card company cannot directly garnish your wages without first obtaining a court judgment. Unlike governmental entities, private creditors like credit card companies must follow a formal legal process. A court judgment signifies a formal decision by a court, legally establishing that you owe a specific amount of money to the creditor. This judicial order transforms the credit card company into a judgment creditor, granting them additional legal avenues for debt collection.
The Legal Process to Obtain a Judgment
The path to a judgment begins with the credit card company’s internal debt collection efforts, such as phone calls and letters. If these efforts do not result in payment or a repayment arrangement, the credit card company may file a lawsuit. This action commences when the creditor files a complaint and serves the debtor with a summons. The summons provides formal notice of the lawsuit and a deadline to respond.
Upon receiving the summons, the debtor can file an answer to dispute the debt or default by not responding. If the debtor fails to respond, the court may issue a default judgment for the credit card company. If an answer is filed, the case proceeds through stages like discovery, motions, and potentially a trial. If the court finds in favor of the credit card company, a judgment for the amount owed will be issued.
How Wage Garnishment Works
Once a credit card company secures a court judgment, they can pursue wage garnishment. Wage garnishment is a legal procedure where a court order requires an employer to withhold a portion of an employee’s earnings to pay a debt. The judgment creditor obtains a writ of garnishment from the court, served on the debtor’s employer. The employer must comply with the writ and begin withholding funds.
Federal law, specifically Title III of the Consumer Credit Protection Act (CCPA), sets limits on the amount garnished from disposable earnings. For credit card debt, the weekly amount garnished cannot exceed the lesser of 25 percent of an employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage ($7.25 per hour). Disposable earnings are wages remaining after legally required deductions, such as federal, state, and local taxes, Social Security, and unemployment insurance.
State laws may offer additional protections or exemptions, potentially reducing the amount garnished or protecting specific income types. Income sources exempt from garnishment include Social Security benefits, certain pensions, and public assistance payments.
Other Post-Judgment Enforcement Actions
Beyond wage garnishment, a judgment creditor has other methods to enforce a court judgment. One common action is a bank account levy, also known as bank garnishment. This process allows the creditor to obtain a court order to seize funds from a debtor’s bank account. The creditor requests a writ of execution from the court, served upon the debtor’s financial institution. The bank freezes funds up to the judgment amount, preventing the account holder from accessing them.
Another enforcement action is placing a property lien, particularly on real estate. A judgment can be recorded with the county office, creating a lien on any real property the debtor owns. This lien acts as a claim against the property, meaning that if the property is sold or refinanced, the judgment debt must be satisfied from the proceeds. While less common for credit card debt, a judgment lien can lead to a forced sale of the property to satisfy the debt, though this is a complex and lengthy legal process. These actions are distinct from wage garnishment but serve the same purpose of collecting the debt after a judgment.