The Ins and Outs of Wage Garnishment, and How to Avoid It

In the world of debt collection, wage garnishment is the equivalent of bringing in the “big guns.” It’s a regular payment to a creditor, taken from a paycheck by the employer. This is a powerful tool used by creditors to get repaid, but it also requires that they initiate a lawsuit – something many are reluctant to do until they’ve tried other methods first. In addition, as might be expected with this rather drastic method of repayment, there are state and federal laws that govern the process that restrict how much can be taken from a person’s paycheck.

Wage garnishment begins with a court issuing a judgment finding that the debtor actually owes the money. Before going to court, the creditor (which might be a bank or another company that is owed money) usually makes its own debt collection efforts. If that fails, then the creditor either turns the debt over to a collection agency (who gets to keep a percentage of the debts they recover) or a debt buyer, who buys the debt for pennies on the dollar and gets to keep all the money they recover. Only after these efforts are unsuccessful do companies take the final step of going to court.

Unfortunately, people with a lot of debt may become used to receiving threatening-looking letters in the mail from their creditors, and not pay attention when they receive notice of a court date. When the court date comes, if the debtor does not appear in court, the creditor will receive a default judgment, which means they “win” by default and the court will generally approve an order to garnish the person’s wages. Thus it’s always best to talk to an attorney if you receive notice of a lawsuit.

Even if wage garnishment is set up, there are limits to how much can be withdrawn. According to federal law, no more than 25 percent of the employee’s disposable earnings (the money that is left after any federal, state and local taxes and other similar deductions are taken out) can be garnished. New Jersey law goes even further, limiting the deduction to 10% of the person’s gross income, but stipulating that the court may order a larger percentage, taking into account the size of the debt, the person’s financial circumstances, how long the debt has remained unpaid, and other circumstances. That makes appearing in court – with an experienced attorney who can best present the case to the judge – even more important for anyone wishing to avoid wage garnishment.