Can Credit Card Companies Garnish Your Wages?

Credit card companies cannot directly garnish your wages. They must first obtain a court order, known as a judgment, before any portion of your earnings can be withheld. This means you will not face immediate wage garnishment simply for falling behind on payments. This legal process ensures individuals receive notice and opportunities to respond before garnishment.

Understanding Wage Garnishment and Credit Card Debt

Wage garnishment is a legal procedure where an employer withholds a portion of an individual’s earnings and sends it directly to a creditor to satisfy a debt. This process is initiated by a court order, which legally compels an employer to divert a specified amount from a paycheck. For credit card debt, a court order is a prerequisite; companies cannot unilaterally garnish wages.

Unlike other debts like child support or federal student loans, credit card debt is a contractual obligation. A credit card company must first sue the debtor and secure a judgment. Only after obtaining this judgment can they petition the court for a garnishment order, allowing enforcement actions like wage garnishment. This principle applies consistently across jurisdictions, ensuring a legal process is followed.

The Path to a Court Order

When credit card payments are missed, the account enters delinquency, leading to late fees and increased interest rates. If payments continue to be missed for several months, the account may be charged off by the credit card company, meaning it’s considered a loss for accounting. The debt remains owed and may be sold to a third-party debt collector.

If collection efforts fail, the credit card company or debt collector may sue the debtor. This begins with filing a complaint outlining the amount owed. The debtor is notified through service of process, typically by receiving a summons and complaint. The summons is an official notice, and the complaint details the allegations. This marks the formal start of legal proceedings.

If the debtor does not respond to the summons within the specified timeframe (20 to 30 days depending on jurisdiction), the court may issue a default judgment for the creditor. A judgment can also be obtained if the case goes to trial and the creditor wins, or through a summary judgment. Once a judgment is obtained, the creditor has the legal right to pursue enforcement actions, including wage garnishment, bank levies, or property liens.

Limits and Exemptions from Garnishment

Federal law provides protections against excessive wage garnishment through the Consumer Credit Protection Act. For ordinary debts like credit card debt, this act limits garnishment to the lesser of two amounts: 25% of an individual’s disposable earnings, or the amount by which their disposable earnings exceed 30 times the federal minimum wage. Disposable earnings are the portion of an employee’s gross income remaining after legally required deductions, such as federal, state, and local taxes, Social Security, and Medicare. Deductions not required by law, like union dues or health insurance premiums, are not subtracted.

For example, with a federal minimum wage of $7.25 per hour, if weekly disposable earnings are $217.50 (30 times $7.25) or less, no garnishment can occur. If disposable earnings exceed this amount but are less than 40 times the federal minimum wage ($290), only the amount above $217.50 can be garnished. Many states have laws providing additional protections or stricter limits, which can be more favorable than federal law, though they cannot conflict with federal regulations. Certain types of income are often exempt from garnishment, including Social Security, disability, unemployment compensation, and some retirement and public assistance benefits.

Navigating a Debt Collection Lawsuit and Garnishment

If you receive a summons for a credit card debt lawsuit, respond within the specified timeframe (typically 20 to 30 days) to prevent a default judgment. File an answer with the court, addressing each allegation in the complaint. Ignoring the lawsuit can result in the court ruling for the creditor, leading to wage garnishment or other collection actions.

If a default judgment is entered, you may challenge it, especially if not properly served or if you have a valid defense like identity theft or the debt being outside the statute of limitations. This involves filing a motion to vacate the judgment, which can reopen the case.

If your wages are garnished or a bank account levied, you have the right to file a claim of exemption with the court. This asserts that certain income or assets are protected under federal or state law, and typically requires completing specific forms and possibly attending a court hearing.

Negotiating a settlement with the creditor or their attorney is an option, even after a lawsuit or judgment. This can involve a lump-sum payment or a structured payment plan for a reduced amount. Any settlement agreement should be formalized in writing, clearly stating the terms.

Given the complexities of debt collection lawsuits and garnishment laws, seeking advice from a qualified attorney specializing in consumer law or bankruptcy is highly recommended. Legal professionals can provide guidance on responding to lawsuits, challenging judgments, claiming exemptions, and negotiating with creditors.