When Can Your Salary be Garnished?
Wage Garnishment is a Fear of Anyone Who Owes Money
One of the biggest fears of people who are in debt is that a creditor will start to take money directly out of their paycheck. While most people associate wage garnishment with taxes and the IRS, other creditors can tap into your salary, though it is not as easy for them to do it.
Wage garnishment usually happens through a court order, though not all creditors are required to go through the courts. Debts for alimony, child support, back taxes, or student loans can lead to money being taken directly from your paycheck without a court order. If you look at these exceptions, they are debts owed to the government or are court-ordered payments.
Other debts, such as credit card debt or medical bills, cannot be satisfied through wage garnishment unless the creditor first sues the person who owes them money, then receives a court order.
There are Laws Regarding Limits on Garnished Wage, but there are Exceptions
Losing any amount of money from your paycheck can be frustrating and cause you additional hardship, but you cannot lose your entire paycheck to garnished wages. The amount allowed to be taken depends on the type of debt that is being collected on.
The highest percentages that can be taken through wage garnishment is for back alimony and child support. Wage garnishment orders for alimony and child support can be 50% of your disposable income. Disposable income is calculated by subtracting allowable deductions from the gross amount of the paycheck.
For people who do not have an additional family or dependents to support, the amount can be as much as 60% with an additional 5% added if your payments are more than 12 weeks late.
Another creditor that can take a large percentage of your paycheck is the Internal Revenue Service. The amount they will garnish depends on the amount owed, though it can also be more than 50% of your gross pay, minus certain allowed deductions.
There are Ways to Fight a Wage Garnishment Order
When it comes to money owed to the IRS, you do have options, and there are ways to get the wage garnishment to stop.
The first is obvious. Once the bill is paid, they stop.
You set up a payment agreement with the IRS.
You prove to the IRS that the levy is creating a financial hardship.
You file an offer in compromise, which is when you offer a lower amount than what you owe. The IRS might not accept the offer.
The IRS runs out of time to collect your back taxes. The IRS has 10 years after the date of assessment to collect on delinquent taxes and tax-related fees. Of course, there are significant exceptions.
You enter bankruptcy.
You prove to the IRS that the levy was wrongful or erroneous – meaning that the IRS levied money that was not yours, or the IRS issued the levy in violation of procedure or law.
The Internal Revenue Service can go beyond garnishing your wages. They can also tap into your bank accounts, social security payments, and even accounts receivables owed to you. Also, remember that states can also garnish your wages to pay taxes owed locally.
Other federal agencies, such as the Department of Education, which back loans, can garnish up to 15% of your paycheck to pay off unpaid bills.
The Consumer Credit Protection Act
For other creditors, the amount that may be garnished is set through the Consumer Credit Protection Act and is determined by calculating which is the lower of two options:
25% of your disposable income, if your disposable income is greater than $290
Any amount greater than 30 times the federal minimum wage
New York State Offers More Protection than Federal Law
New York State does offer more protection to wage earners than the federal limits. In New York, creditors may garnish the lessor or these two options:
10% of your gross wages
25% of your disposable income to the extent that this amount exceeds 30% of the minimum wage.
In New York, if your disposable income, determined again by gross pay minus allowed deductions, is less than 30 times the minimum wage, your paycheck cannot be garnished.
If you are subject to multiple wage garnishment orders, they are generally cumulative, up to a certain point. The law does not allow creditors, even the IRS, to leave you without a means to live. Even with multiple orders or judgments, your garnishment limits are the lesser of:
10% of your gross wages
25% of your disposable wages
Contact Kamini Fox for a Free Consultation
At Kamini Fox, PLLC, we understand that things can spiral out of control very quickly once you are in debt. You will notice that the debts that hold the highest risk of wage garnishment (alimony, child support, student loans, federal taxes) are also the debts that cannot be discharged through bankruptcy. That does not mean you do not have options at your disposal. Call our office and set up a free consultation to discuss your personal situation.
We understand that things seem hopeless when you are in significant debt, but remember that bankruptcy is not the end. It is a chance for a new beginning.