Garnished wages

When your employees are in credit to debtors, such as student loan collectors, it's crucial to understand wage garnishment.

  • Legal

  • Wage garnishment

What is a garnishment?

Garnishment is a legal process in which a creditor collects unpaid debts or assets by withholding them directly from an individual’s paycheck or other source of income. The money or assets are usually garnished by a third party and then given to the creditor. It is typically used as a last resort when a debtor has failed to make payments on a credit card or student loan, for example, and the creditor has obtained a court judgement.

What is wage garnishment?

Wage garnishment, also called wage attachment, refers explicitly to the process by which a creditor recovers unpaid debts by deducting them from an employee’s wages. A court may authorise an employer or organisation to withhold a percentage of an individual’s earnings each month and to transfer the garnished wages to the creditor. Common uses of garnishment include debts such as unpaid taxes, outstanding student loans, or credit card debts.

A court usually issues a garnishment, serving a garnishment notice to the employer. The employer is then legally obliged to continue the garnishment until the notice expires.

There are usually legal limitations on how much can be garnished based on the employee's disposable income and whether or not they have dependents. These limitations vary between countries; in the US, for instance, federal regulations allow courts to garnish 25% of the debtor’s weekly disposable earnings, or the excess of their weekly earnings over 30 times the federal minimum hourly wage.

There are typically three parties involved in wage garnishment.

  • The debtor - the individual with unpaid debts 

  • The garnishee - a third party that receives legal instructions to withhold a portion of the debtor’s wages, for example, the employer or a bank 

  • The garnishor - the creditor and party issuing the garnishment notice

Note that a debtor can appeal a garnishment if they believe it’s unjust. Some valid reasons debtors object to garnishment include if the creditor is taking an excessive amount of money, the debtor has already paid the debt, the creditor did not follow legal protocol, or the debtor has a legitimate exemption from garnishment. Exempt income usually includes payments related to social security, disability, retirement, child support, and alimony. During an appeal, debtors may need to negotiate directly with the garnishor or file an objection with the court and comply with all court procedures and timelines.

Typically, a wage garnishment will only end once a debtor pays off the debt or makes alternative arrangements with the creditor. If a debtor files for bankruptcy, it will also stop most wage garnishments. However, this may put a debtor’s property and physical assets at risk. Wage garnishments may also end if the court judgement expires.

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