Can Credit Card Companies Garnish Your Wages?

Consumers frequently express concern about credit card debt and the potential for wage garnishment. This financial insecurity often stems from a lack of clarity regarding the powers of creditors and the legal processes involved in the United States. This article aims to provide clear, concise, and accurate general information on the topic. Understanding what actions credit card companies can take, and the specific circumstances under which they can pursue a portion of your earnings, provides important clarity for making informed decisions and alleviating anxiety.

Credit Card Companies and Wage Garnishment

Credit card companies cannot directly garnish an individual’s wages without first obtaining a court order. Wage garnishment is a legal procedure where an employer withholds a portion of an individual’s earnings to repay a debt. These companies are unsecured creditors, meaning the debt is not backed by collateral. Unlike secured debts, such as a car loan or mortgage, credit card obligations do not automatically grant the creditor the right to take property or wages if payments are missed. To enforce collection actions like wage garnishment, a credit card company must follow a specific legal process, culminating in a judgment from a court. Without this formal legal ruling, a credit card issuer cannot compel an employer to deduct funds from an employee’s paycheck.

The Path to a Court Judgment

A credit card company must first sue the debtor in court and obtain a judgment. This legal action begins when the creditor files a lawsuit for non-payment. The individual is formally notified through “service of process,” receiving a summons and complaint. The summons informs the debtor they are being sued, and the complaint details the amount owed and the reasons for the claim.

Upon receiving a summons, the individual has a limited timeframe, often 20 to 30 days, to respond. Responding involves filing a formal answer with the court, allowing the debtor to present their side or dispute the debt. If the debtor fails to respond, the court may issue a default judgment. A default judgment means the court rules in favor of the creditor without hearing the debtor’s defense, legally establishing the debt and the creditor’s right to pursue collection actions.

Implementing a Wage Garnishment Order

Once a court judgment is secured, the credit card company can seek an order to garnish wages. This involves the court issuing a writ of garnishment or an earnings withholding order. This order is formally served on the debtor’s employer, typically through certified mail, private process server, or a sheriff. The employer is obligated to comply with the garnishment order.

The employer must withhold a specified portion of the employee’s wages and remit these funds directly to the creditor or the court. This withholding continues until the debt, along with any accrued interest and fees, is fully satisfied or a stop order is issued. The amount garnished is based on the employee’s “disposable earnings,” calculated by subtracting legally required deductions like federal, state, and local taxes, Social Security, and Medicare from gross pay. Voluntary deductions, such as retirement contributions or health insurance premiums, are not subtracted.

Federal law, the Consumer Credit Protection Act (CCPA), sets limits on how much of an individual’s wages can be garnished. The maximum amount that can be garnished in any workweek is the lesser of two figures: 25% of the employee’s disposable earnings, or the amount by which disposable earnings exceed 30 times the federal minimum wage. As the federal minimum wage is currently $7.25 per hour, if weekly disposable earnings are $217.50 ($7.25 x 30) or less, no garnishment can occur. If disposable earnings are more than $217.50 but less than $290 ($7.25 x 40), only the amount above $217.50 can be garnished. Should weekly disposable earnings be $290 or more, a maximum of 25% can be garnished.

Additional Post-Judgment Collection Actions

Beyond wage garnishment, obtaining a court judgment empowers credit card companies to pursue other collection methods. One such action is a bank levy, which allows the creditor to seize funds directly from a debtor’s bank account. After securing a judgment, the creditor can obtain a court order directing the bank to freeze or turn over funds in the debtor’s account up to the judgment amount.

Another post-judgment collection action is placing a property lien. A judgment lien attaches to real estate owned by the debtor, meaning the property cannot be sold or refinanced without first satisfying the judgment. While a lien does not immediately force the sale of a property, it acts as an encumbrance that must be resolved before the property can be freely transferred. These methods provide creditors with additional avenues for debt recovery.

Legal Safeguards Against Collection

Individuals facing wage garnishment have legal protections to ensure they retain sufficient income for living expenses. The federal Consumer Credit Protection Act (CCPA) limits the amount of wages that can be garnished and prevents an employer from terminating an employee if their wages are garnished for a single debt.

In addition to federal limits, state laws often provide further or stronger exemptions from wage garnishment and other collection actions. These state-specific protections can exempt certain types of income entirely, such as Social Security benefits, disability benefits, and some retirement funds. State laws may also protect a greater portion of an individual’s disposable earnings or certain assets from seizure. The specific protections available vary by state, highlighting the importance of understanding applicable laws.