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Shared Earnings

Published: June 26, 2007

Creditors and debt collectors must be mindful of garnishment restrictions.

The ability to garnish is a powerful tool available to creditors and debt collectors seeking to recover debts. Garnishment exists in one form or another in nearly all states, excluding only North Carolina, Pennsylvania, South Carolina and Texas (though Texas does allow bank garnishment). In Massachusetts, Maine, New Hampshire and Vermont, this remedy is called a “trustee process.” In Montana, garnishment is by “attachment.” So what exactly is garnishment?

Garnishment is a legal proceeding that allows a creditor to obtain payment for a debt by gaining access to the assets of a consumer that are being held by another person, such as wages in the hands of an employer or an account at a bank.

The most common form of garnishment is wage garnishment. Wage garnishment is any legal or equitable procedure through which some portion of a consumer’s earnings are required to be withheld by the employer for payment of a debt. Another form of garnishment is the levying of a consumer’s bank account. In this instance, when a bank receives notice of a garnishment, the bank must freeze any monies in the consumer’s account that are not exempt from collection.

Most garnishments must be created by court order. After a creditor or debt collector obtains a judgment against a consumer, the creditor or collector may ask the court to issue a writ of garnishment, which allows the creditor or debt collector (garnishor) to garnish the assets of the consumer. Garnishment may also be effected through Internal Revenue Service or state tax collection agency levies for unpaid taxes and federal agency administrative garnishments for non-tax debts owed to the federal government. Bank account garnishment is a similar process to that of wage garnishment, whereby the account of a consumer is garnished for the amount of the debt.

Once a creditor or debt collector has obtained a writ of garnishment, either for wages or an account, the garnishor must provide notice to either the consumer’s employer or banking institution, depending on the type of garnishment.

The garnishor must also provide the consumer with notice of the garnishment. The notice, which varies between courts, generally informs the consumer that a garnishment has been adjudicated, the amount to be garnished, the length of time the garnishment will remain in effect and any information regarding the consumer’s rights as well as any exemptions that may be afforded to him.

When using garnishment as a tool in the collection process, it’s important to know what can be garnished as well as the federal and state restrictions that apply. The amount of pay subject to garnishment is based on an employee’s disposable earnings, which is the amount left after legally required deductions have been made. These deductions include federal, state and local taxes; Social Security benefits; and state unemployment insurance. However, union dues, health and life insurance, contributions to charitable causes and purchases of savings bonds are not legally required deductions and, therefore, count as disposable income. Upon receiving a writ of garnishment, consumers are allowed to minimize their disposable earnings by claiming the exemptions detailed above.

If the creditor or debt collector chooses to garnish the consumer’s bank account, the consumer may claim that funds in the account are exempt by completing the notice of exemption form provided by the garnishor. To claim these exemptions, the consumer must notify the garnishor in writing which funds are exempt. Many courts allow the consumer a formal hearing to explain why the funds in the bank account should not be garnished. However, the consumer must make an exemption claim in a timely manner or the garnishment will stand as adjudicated.

Under federal law, the Consumer Credit Protection Act (CCPA) sets the maximum amount that may be garnished in any workweek or pay period, regardless of the number of garnishment orders received by the employer. For garnishments, excluding those for support, bankruptcy, or any state or federal tax, the weekly amount may not exceed the lesser of two figures: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage (currently $5.15 an hour).

For example, if the pay period is weekly and disposable earnings are $154.50 ($5.15 x 30) or less, there can be no garnishment. If disposable earnings are more than $154.50 but less than $206 ($5.15 x 40), the amount above $154.50 is subject to garnishment. A maximum of 25 percent can be garnished if disposable income earnings are $206 or more. When pay periods cover more than one week, multiples of the weekly restrictions must be used to calculate the maximum amounts that may be garnished. On its Web site, the Department of Labor provides the table shown above to illustrate these examples.

Though many state statutes track the CCPA exemption provision, if a state wage garnishment law differs, the law resulting in the smaller garnishment must be observed. The following states allow for an exemption equal to 40 times the federal minimum wage: Connecticut, Maine, Minnesota, New Mexico and North Dakota. In these states, the weekly amount of disposable earnings that are exempt equal $206 ($5.15 x 40) or 25 percent of the employee’s disposable earnings, whichever is less.

Many other states have an exemption higher than 40 times the federal minimum wage. In these states, the exemption may simply state a higher percentage that is exempt or the statute may detail a precise exemption.

For example, Illinois law exempts the lesser of 85 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 45 times the federal minimum wage.

Florida law states the “[d]isposable earnings of a head of a family, which are greater than $500 a week, may not be attached or garnished unless such person has agreed otherwise in writing. In no event shall the amount attached or garnished exceed the amount allowed under the Consumer Credit Protection Act [CCPA].”

It’s essential to understand not only the amount a state exempts from garnishment, but also how long the writ of garnishment will remain in effect according to state laws and rules. Many states, such as Alabama, Alaska and Mississippi, allow for the continuous garnishment of a consumer’s assets until the judgment is satisfied.

Some states limit the amount of time a garnishor may garnish the consumer. For instance, North Dakota allows for only a 270-day continuing garnishment. Other states use a hybrid of these statutes—Tennessee law, for example, states the garnishment will go into effect upon notification given to the consumer’s employer and will remain in effect until the judgment is satisfied or for three months, whichever occurs first.

If the writ of garnishment expires in accordance with state law, the garnishor may be able to extend the writ of garnishment. In Nebraska, the garnishor “may extend the lien for a second 90-day period by filing with the court a notice of extension during the 15 days immediately prior to the expiration of the initial lien.”

Although garnishment is a powerful tool for creditors and debt collectors, the intricacies involved demonstrate why it’s essential to be aware of the federal and state laws that apply. Because these laws vary greatly between states, creditors and debt collectors are encouraged to consult their Members’ Attorney Program (MAP) attorney in order to analyze applicable laws and decide how garnishment may be used as an effective debt collection tool. For help finding a MAP attorney, please contact MAP at map@acainternational.org.