Wage Garnishment Law: What You Need to Know About Title III
Written by: Kristy Welsh
Last Updated: March 1, 2018
If you are in default on one or more debts, the prospect of wage garnishment is terrifying. You’re not paying your debts because you cannot afford to pay your debts; wage garnishment gives you no choice. (You’ll also end up in serious need of credit repair.) Get the facts about Wage Garnishment Law, better known as Title III of the Consumer Credit Protection Act (CCPA). Find out when your wages can be garnished, how much they can take, and how you may be able to avoid it through a Wage Garnishment Judgment Exemption.
When Your Wages Can Be Garnished
When you default on a debt, the creditor can sue you for the unpaid balance. Assuming the debt is accurate, and the court finds in the creditor’s favor, your employer can be ordered to garnish your wages for payment. Of course, if the creditor is the IRS, they need not go through a judge or court proceeding at all; they can order the garnishment directly through your employer.
Types of wages that can be garnished
Any “compensation for personal services” can be garnished:
- Other (e.g., payments from a pension or retirement program or an employment-based disability program)
Tips are an exception. As explained by the U.S. Department of Labor:
“The cash wages paid directly by the employer and the amount of the tip credit claimed, if any, by the employer are earnings for the purposes of the wage garnishment law. Tips received in excess of the tip credit amount or in excess of the wages paid directly by the employer (if no tip credit is claimed or allowed) are not earnings for purposes of the CCPA.”
How much can be garnished
There are limits to how much can be garnished from your paycheck. And garnishment can only come from your disposable earnings — that is, how much is left after meeting your obligations for taxes, Social Security, Medicare, etc.
From your disposable earnings, the amount that can be garnished is the lesser of:
- 25 percent OR
- Amount that exceeds 30 times the federal minimum hourly wage ($7.25)
For instance, if you get paid weekly, and your disposable earnings are:
- $217.50 or less, nothing would be garnished
- $217.51-289.99, anything above $217.50 would be garnished
- $290 or more, maximum 25 percent would be garnished
If you get paid every 2 weeks, and your disposable earnings are:
- $435 or less, nothing would be garnished
- $435.01-579.99, anything above $435 would be garnished
- $580 or more, maximum 25 percent would be garnished
That said, there are exceptions.
Spousal and child support
Your disposable earnings can be garnished by up to:
- 50 percent for spousal or child support if you have another spouse or child you are supporting (i.e., those in addition to whoever is named in the order)
- 60 percent for spousal or child support if that is the only spousal or child support you are providing
If you owe back taxes, the federal government is not limited by the aforementioned percentages, but must leave you with enough to cover basic living expenses. The way the amount is determined depends on your number of dependents and deductions.
“During 2017 for example, a single parent with two children who files as head of household can be left with as little as $413.46 per week. This means that if you earn $1,000 per week, the IRS takes $586.54 of it, and if you earn $2,000 per week, it can take $1,586.54. However, the amount of your garnishment will depend on how much tax you owe.”
Again, unlike other debt collectors, the federal government does not need a judgment to garnish your wages; they can do it directly through your employer.
Laws will vary by state but the amount garnished cannot exceed that of the federal limit.
Non-tax federal debt
Other laws govern garnishment specific to non-tax debts owed to the federal government:
- The Debt Collection Improvement Act allows federal agencies (or collection agencies they have hired) to garnish up to 15 percent of your disposable income
- The Higher Education Act allows the Department of Education’s guaranty agencies to garnish up to 10 percent of your disposable income for student loans in default
A court order is not necessary in either case.
When you are in the middle of bankruptcy proceedings, wages cannot be garnished from your paycheck (with the exception of spousal or child support). After bankruptcy, creditors cannot garnish wages that were discharged, but any debt that was not discharged is fair game again.
Voluntary wage assignments
If you grant a creditor the right to take money out of your paycheck, it is called a voluntary wage assignment (which we do not recommend). This is different from wage garnishment, in that there was no judgment against you. It was simply a contract entered into by you and a creditor.
Unfortunately, Title III does not cover voluntary wage assignments, so you are not protected by any restrictions. That said, some states do have such laws on the books, so check with your State Attorney General’s office for information specific to where you live.
When your employer is ordered to garnish your wages, they must provide you with a Wage Withholding Order. Unless you are able to stop it (see Wage Garnishment Judgment Exemption below), the employer is required to begin the wage garnishment 30 days from then.
Title III also prevents your employer from firing you for wage garnishment…unless you have more than one. If you have multiple garnishments coming out of your paycheck, your employer is free to let you go.
Prioritization of multiple garnishments
Title III does not cover the order in which multiple garnishments should be satisfied; that’s a decision left up to the court or enforcing agency.
The impact of state law on garnishment limits
The law that applies — state or federal — will be the smaller garnishment amount of the two.
How wage garnishment affects your credit
A wage garnishment will not show up on your credit reports, so it will not affect your credit score directly. However, the defaulted debt that led to the garnishment can stay on your credit reports for up to 7 years, as can the public record of any judgment against you.
How to avoid wage garnishment
The most obvious way of avoiding wage garnishment is to avoid defaulting on your debts. If that is not possible, the next best thing is keeping an open line of communication between you and your creditors so that some sort of payment plan can be worked out. If it’s too late for that, and you have already received the Wage Withholding Order, try filing a Wage Garnishment Judgment Exemption.
What happens if your rights are violated
If you believe your Title III rights have been violated, file a complaint with the Wages and Hours Division.