If you’re living paycheck to paycheck and having a hard time keeping up with your bills, you might be at risk for having a debt collector garnish your wages. Debt collectors at a collection agency are legally allowed to intercept your paycheck if you fail to make payment on an outstanding debt. But they have to follow certain rules and regulations when collecting this debt.
Wage garnishment is a legal process that allows creditors to collect on a debt you still have not paid within a reasonable amount of time. In most cases, you are at risk for having your wages garnished when your account is at least six months past due and you haven’t been in touch about setting up a new payment plan.
The federal Consumer Credit Protection Act (CCPA) states that debt collectors can only garnish a certain percentage of your disposable income — the income you have after you’ve paid taxes and Social Security. The maximum weekly garnishment cannot exceed 25 percent of your disposable earnings or the amount by which those earnings are greater than 30 times the federal minimum wage of $7.25 per hour, whichever is less.
Fortunately, you can take steps to prevent wage garnishment and make arrangements for an affordable payment plan to stay afloat. Here’s what you need to know so you can protect your paycheck.
1. Emphasize Your Intent to Pay
Take steps to show creditors you are willing to pay by negotiating a realistic payment plan. Showing your intent to pay can help support your case, said Lynnette Khalfani-Cox, co-founder of TheMoneyCoach website.
“It’s important to remember that your creditor(s) will pursue wage garnishment only when they’ve exhausted every other method to get you to pay your debt,” she said. “To prevent them from going to court in the first place, you should do your best to stay in touch with the creditor and work on setting up a reasonable repayment plan.”
2. File an Exemption
When a wage garnishment has already been approved in court, you still have the option of filing a “claim of exemption.” The legal document asks the court to stop or reduce your wage garnishment. On the form, you list your income and monthly expenses. The form is used to prove you can’t reasonably afford to have your wages garnished because of your living expenses. So, the court might reduce your garnishment amount after a closer review of your situation.
Pay attention to state garnishment laws. States such as Florida grant an automatic exemption to the head of household, or the person who provides more than half of the support for a child or other dependent. Check with your state’s Department of Labor to find out what types of exemptions you might be eligible for, and which limitations are in place for wage garnishments.
3. File Chapter 7 Bankruptcy
You can file bankruptcy to prevent the effects of wage garnishment and get some debt relief by wiping out your debt payment obligations altogether. Chapter 7 bankruptcy is known as “straight liquidation,” Khalfani-Cox said. Once you file, your creditors aren’t legally allowed to pursue further action.
The downside of filing bankruptcy is the negative impact on your credit rating. The bankruptcy also stays on your record for 10 years. Still, it can be a last-resort option if you can’t pay off debt.
4. Pay Off Outstanding Debt
A court will stop the garnishment process if you pay your debt in full within 10 days of the judgment, according to Khalfani-Cox. Find a way to tap into a credit card line or get a personal loan, and you can prevent wage garnishment in the near future. “Just bear in mind that you may have to pay attorney’s fees, processing costs and interest too, which can all inflate the cost of your original debt,” Khalfani-Cox said.
Creditors typically prefer a lump-sum payment instead of periodic payments. As a result, they might settle the debt for less than you owe if you have the ability to pay everything off in one payment. Consider your options for a one-time payoff so you can halt the wage garnishment process in its tracks.
5. Be Prepared to Negotiate on Court Day
You might still have the chance to negotiate a lower payment or dismiss a creditor’s claims entirely simply by showing up in court, Khalfani-Cox said. Doing so allows you to make your own case to protect your paycheck.
You might need to share proof of financial difficulties to justify having your wage garnishment reduced or dismissed, so be prepared to explain your financial situation in detail. If you’ve already objected to the wage garnishment and filled out a form, bring a copy of all submitted and supporting documents to court, including recent pay stubs.