Are you dealing with wage garnishment issues? You need to know wage garnishment law and understand the statistics behind wage garnishment in the U.S.
By understanding the laws and statistics surrounding garnishment, you can take control of your financial situation and protect your hard-earned money.
Wage Garnishment
A wage garnishment is a legal or equitable procedure where a portion of an individual’s earnings is withheld to pay a debt. Court orders typically initiate most garnishments. Other forms of legal or equitable garnishment procedures include levies by the Internal Revenue Services (IRS) or state tax collection agencies for unpaid taxes and administrative garnishments by federal agencies for non-tax debts owed to the government. [1]
Following are the other most common types of unpaid debt that lead to wage garnishment:
- Credit card and other personal loans
- Child support payment
- Default student loans
- Medical bills
- Unpaid taxes
Wage Garnishment Laws in The U.S.
Each state has its laws and regulations regarding wage garnishment, and it is significant for employers and employees to understand their rights and responsibilities in these situations.
Knowing about federal minimum wage and disposable income is important before understanding wage garnishment laws in the U.S. The federal minimum wage sets the lowest hourly wage employers can legally pay their employees. At the same time, disposable earnings refer to the amount of income left after taxes and other mandatory deductions, including federal government taxes, state taxes, and local taxes, and the employee’s share of social security, medical care, and state unemployment Insurance tax, have been made.
Wage garnishment laws in the U.S. are governed by the Consumer Credit Protection Act (CCPA) Title III, which limits the amount that can be garnished from a person’s wage. According to the CCPA, creditors can only garnish up to 25% of a person’s disposable earnings, or the amount by which their earnings exceed 30 times the federal minimum wage, whichever is less. [1]
For example, there can be no garnishment if the disposable earnings are $217.50 or less for the weekly pay period. The excess can be garnished if disposable earnings exceed $217.50 but are less than $290. If disposable earnings are $290 or more, a maximum of 25% can be garnished. For biweekly pay periods, two times the weekly limits are used to calculate the maximum amounts that may be garnished.
Title III limits the amount of earnings garnished for child support or alimony, allowing up to 50% of disposable earnings to be garnished or 60% if the worker is not supporting another spouse or child. An additional garnishment of 5% may be imposed for support payments that are more than 12 weeks in arrears. [1]
The CCPA Title III prohibits an employer from terminating an employee due to their earnings being garnished for a single debt, regardless of the number of attempts to collect that amount. However, the CCPA allows for discharge if an employee’s earnings are garnished for multiple debts separately. [1]
Wage Garnishment Statistics in U.S.
ADP report reveals the following facts about payroll garnishment for consumer debts [2]
- In 2019, more than 4.5 million workers had their wages garnished for consumer debts
- The Midwest has the highest rate of garnishment for consumer debts in the country, 40% above the national rate
- Indiana's garnishment rate is nearly double the national rate, and Michigan's rate is over 70% higher
- Manufacturing has the highest rate of garnishment for consumer debts at 3.8%
- Low and moderate-wage workers, earning $25,000 to $39,999 annually, have the highest garnishment rates, reaching up to 4.6%.
- In 2019, over one in 100 workers had their wages garnished for delinquent debt.
- On average, a garnished worker experiences five months of garnishment, with about 11% of gross earnings remitted to their creditor(s) [3]
Differences Between Ordinary and Consumer Debt Garnishments
Ordinary and consumer debt garnishments differ in the type of debt they encompass and their impact on wages. Ordinary garnishments involve debt obligations such as alimony, child support, and defaulted student loans, while consumer debt garnishments may involve unpaid taxes, credit card debt, or medical bills.
When it comes to impact on wages, ordinary garnishments may have a higher priority and could result in a more significant portion of wages being withheld. Individuals work with family courts or other government agencies for ordinary garnishments, while consumer debt garnishments often involve working directly with creditors or collection agencies.
Garnishment for most types of consumer debt may occur after a creditor wins a judgment in court. It allows the creditor to take a portion of the consumer’s wages, administered by the employer, to pay off the judgment. It cannot be used for necessities and goes towards paying old debts, like medical or credit cards, which the creditor may have bought for less than the original amount. [2]
Are There Any Exceptions to the Wage Garnishment Limit Under CCPA Title III?
Under Title III of the CCPA, social security benefits are generally exempt from wage garnishment, with few exceptions. It means that creditors cannot garnish a portion of your social security benefits to pay off debts. It is in place to protect the financial security of individuals who rely on social security benefits as their primary source of income.
However, there are specific exceptions to Title III’s limitations on wage garnishments for social security benefits. Unpaid federal or state taxes and bankruptcy court orders do not have a garnishment cap, which means that these entities may be able to garnish a portion of your social security benefits to satisfy these debts. [4]
The Debt Collection Improvement Act permits federal agencies or their contracted collection agencies to garnish up to 15% of disposable earnings to repay defaulted debts to the U.S. government.
The Higher Education Act also allows the Department of Education’s guaranty agencies to garnish up to 15% of disposable earnings to repay defaulted federal student loans. If the total garnishments are less than 25% of disposable incomes, questions about them should be directed to the agency responsible for the withholding, as long as they fall within Title III’s limits. [4]
Contact us the Richard West Law Office today to better understand your rights and legal procedures when facing wage garnishment.
FAQs
Usually, a creditor must obtain a court order before garnishing your wages. However, there are exceptions for certain types of debts, such as unpaid taxes and child support, where a court order may not be required.
Depending on the circumstances, you may be able to stop a wage garnishment by negotiating a payment plan with the creditor, filing for bankruptcy, or proving a financial hardship.
Sources:
[1] Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title III (CCPA). (n.d.). DOL. https://www.dol.gov/agencies/whd/fact-sheets/30-cppa
[2] WAGE GARNISHMENT FOR CONSUMER DEBTS. (n.d.). National Consumer Law Center. Retrieved February 8, 2024, from https://www.nclc.org/wp-content/uploads/2022/10/IB_Wage_Garnishment_Covid_and_Beyond.pdf
[3] DeFusco, A., Enriquez, B., & Yellen, M. (2022, December 1). Wage Garnishment in the United States: New Facts from Administrative Payroll Records. https://doi.org/10.3386/w30724
[4] Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title 3 (CCPA). (n.d.). U.S. Department of Labor. Retrieved February 16, 2024, from https://www.govinfo.gov/content/pkg/GOVPUB-L36-PURL-LPS101648/pdf/GOVPUB-L36-PURL-LPS101648.pdf
