Can Credit Card Companies Garnish Your Wages

If a judge rules that you owe money, the creditor may be able to take money from your paycheck or other benefits in order to satisfy the judgment. The amount that a creditor may deduct from your pay is limited by state and federal laws. Additionally, they protect a minimum amount in your bank account from levies even if you do not receive federal benefits, or they restrict the amount that a creditor can garnish from an account where your benefits are deposited.

Most creditors are only able to take money from you through wage or benefit garnishments if a court rules that you owe them money and that they have the right to take money from you in order to pay them back. A garnishment order often gives a creditor the right to deduct extra interest, fees, or collection costs from the judgment amount.

What Is Wage Garnishment?

One method used by businesses to collect debt that needs a court order is wage garnishment. If a judge grants the right to garnish wages, a portion of your income is deducted from your paycheck and given to creditors in order to settle debts.

Wages may be withheld for unpaid public debt, such as unpaid taxes, or for past-due credit card or loan balances.

Let’s say your monthly salary from work is $3,000. Through a court order, a credit card company can garnish 25% of your take-home pay; this means that $750 will go toward the credit card debt rather than your wallet.

When you apply for a credit card, you pledge to pay back any debt you accrue. You may face legal action if you fail to make the payments as per the terms of the agreement. If you have too much credit card debt, you run the risk of incurring penalties from the credit card company, who will usually try to work with you to find a way to pay it off.

Legal steps must be taken to start garnishment. If you are simply not paying your debts on time, a creditor will usually file for bankruptcy. A portion of your wages may be garnished in accordance with the court order; the amount garnished will rely on your income.

For the duration that your debts are settled, usually, your wages are garnished.

Who Can Garnish Wages?

Any private creditor can seek garnishment of wages. This comprises debt collection agencies, banks, credit card companies, mortgage companies, and student loan servicers.

Moreover, wages may be withheld to settle an outstanding tax debt.

It hurts if credit card debt is your problem. First, the average interest rate on credit cards is between 20% and 21%. That is an enormous burden. But credit card companies have the right to request a court order to garnish wages if you ignore the debt or stop making payments on it.

Garnishment is a seriously unpleasant experience. Nobody likes to work and watch their money disappear into the pockets of others, but that’s precisely what occurs. A chunk of your paycheck disappears.

Although you should be happy that your debt is being paid off, it is difficult to get used to earning less money all of a sudden.

How Much of Your Wages Can Be Garnished?

The Consumer Financial Protection Act places a cap on the amount that can be garnished; the amount depends on your income and the nature of your debt.

In the case of private debt such as that of a credit card company, garnishment is restricted to 25% of your take-home pay ($250% if your take-home pay is $1,000) or the amount your take-home pay exceeds the federal minimum wage, whichever is lower.

That sounds like government jargon, so let’s dissect it.

The federal minimum wage is $7. 25 per hour; 30 times that wage is $217. 50. So if your take-home pay is $217. 50 or less per week, you cannot be garnished. If take-home pay is between $217. 50 and $290, the amount above $217. 50 can be garnished. If take-home earnings are above $290, 25% can be garnished.

When it comes to child support and alimony, garnishment is higher, ranging from E2%80%93% between 65% and 50% of income, depending on the circumstances. It is limited to 15% of income for student loans. How much can be garnished for overdue taxes is determined by the IRS according to its own regulations.

State governments are free to enact laws restricting garnishment, but those laws cannot be in conflict with federal legislation.

How To Prevent Wage Garnishment

Reaching the point where wages are garnished is never good. You work hard for your money, so losing it due to debt repayment or neglect has an impact on spending plans and overall well-being.

It can be difficult to halt the garnishment process once a court order allowing the creditor to do so has been issued, but there are steps you can take to prevent that issue.

Here are some ways to avoid garnishment:

Negotiate a deal with a lender to accept less than you owe in order to settle your debt. Although a creditor is not required to accept a settlement, it may choose to do so in order to save money by avoiding the expense of going to court. If you wish to avoid filing for bankruptcy and are on the verge of doing so, this is a good option.
Examine state exemptions: Some states may permit you to exclude certain incomes, such as retirement income, child support, disability benefits, and Social Security income. Considering that claiming the state exemption entails filing in state court, it may be necessary to assess your situation and obtain legal counsel. One crucial thing to keep in mind is that every state has a statute of limitations on debt, which is typically 4-6 years. It’s crucial to confirm that the creditor has the right to file a lawsuit in order to pursue the debt.
Contest the Garment: You will receive instructions on how to contest the court order that directs you to be garnished when you receive it. This entails notifying the court clerk that you plan to contest the garnishment. Different states have different deadlines for filing challenges, so be sure to familiarize yourself with the guidelines there.
File for bankruptcy: This filing stops garnishment. When you file for bankruptcy, you are shielded from creditors’ collection efforts for the duration of the court proceedings. Most people view bankruptcy as a last resort, and the concept is unpopular. However, after debts are settled, it provides a solution and a new beginning for some. While bankruptcy may seem frightening, it may not be as frightening as having your wages garnished.

How Many Workers Are Affected by Wage Garnishment?

The National Bureau of Economic Research reports that:

As of 2019, more than 1% of workers reported receiving garnished wages.
The average time length of the garnishment is five months.
Workers saw 2011% of take-home pay lost due to garnishment during that period.
About 7% of U. S. workers have experienced at least one wage garnishment.

Seek Credit Counseling To Help Deal With Your Debt

When credit card debt overwhelms a person to the point of wage garnishment, they require wise counsel and assistance. Nonprofit credit counseling provides that assistance.

Credit counseling is a free service that offers guidance on creating budgets and ways to get out of debt. Counselors are legally required to evaluate your case and recommend the best course of action.

While some may choose to settle their debts, others might think about a debt management plan. This entails negotiating a deal with credit card companies to reduce the debt’s interest rate. Although it needs regular monthly payments, it might be a possibility for you.

The best course of action to prevent garnishment and pay back debts might be to consult a nonprofit credit counselor.

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George Morris has written on almost everything during his more than 40 years in the newspaper industry, including World War II veterans, evangelists, Super Bowls, and regular people with remarkable stories. Several awards for his work have been given by the Louisiana Press Association, the Louisiana-Mississippi Associated Press, and the Society of Professional Journalists. He pays off debt as soon as he can and avoids it when he can’t, and he’s more than happy to offer advice on how you might follow suit.

Schultz, M. October 6, 2023: The current average credit card interest rate in the United States Retrieved from https://www. lendingtree. com/credit-cards/average-credit-card-interest-rate-in-america/.
Loftsgordon, A. (ND) Using Exemptions to Protect Your Wages From Garnishment. Retrieved from https://www. nolo. com/legal-encyclopedia/using-exemptions-protect-your-wages-from-garnishment. html.
U. S. Department of Labor (2020, October 20) Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protections Act’s Title III (CCPA). Retrieved from https://www. dol. gov/agencies/whd/fact-sheets/30-cppa.

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FAQ

How do I stop a credit card garnishment?

One way to end a garnishment is to: Completely settle the debt If you have a legitimate objection—for example, if the debt was the consequence of fraud or identity theft—you may file a court objection to the garnishment.

Can a credit card company garnish your bank account?

Yes, a debt collector has the right to take money directly out of your bank account if they win their lawsuit. This is known as garnishing. Before filing a lawsuit, the debt collector would give you advance notice.

Can a credit card company take your paycheck?

Any private creditor, including credit card companies, may request a court order to garnish your wages if you are not making payments on your debts. Usually a last resort, garnishing wages requires following legal procedures before any money can be taken from your paycheck.

What happens if a credit card company sues you and you can t pay?

To put it simply, you will typically lose by default if you don’t answer to the lawsuit. The court will issue an order called a default judgment. If you lose a debt lawsuit, you may be subject to aggressive collection tactics such as bank account levy, wage garnishment, or lien placement on any assets you may possess.

Read More :

https://www.bankrate.com/finance/credit-cards/can-credit-card-companies-garnish-wages/
https://www.incharge.org/debt-relief/can-creditors-garnish-wages/