If you owe money to a bank or some other finance company, you’ve more than likely received calls from debt collectors. You’ve also probably wondered “Can a collection agency garnish wages?”
Well, they may and you need to know how to avoid key missteps to prevent your wages from garnishment.
Many others have out-of-control credit card debt. Or in some cases, outstanding medical bills, child support, or alimony.
Read more to learn more about wage garnishment and how to avoid it.
Can A Collection Agency Garnish Wages?
If you owe money, don’t hide your head in the sand. Wage garnishment is embarrassing because it means your employer knows your financial situation.
It’s also a financial burden since you won’t have control over how much money gets taken.
Federal law protects 75% of your paycheck from garnishment. Or it protects 30 hours per week of the federal minimum wage, whichever is greater.
There are only four states that ban wage garnishment for most debts. These states are North Carolina, Pennsylvania, South Caroline, and Texas.
In most states, your paycheck is eligible for garnishment for a large amount of your monthly income.
Your Credit Habits
Understand how credit cards work before you start purchasing. Make sure you establish good credit habits.
The average rate of interest on a credit card is almost 17%. If you fail to pay off your bill each month, you pay a lot more for your purchases than the initial sale price.
Most Americans carry an average balance of over $6,000 on their credit cards. That’s an average of almost $100 per month spent on interest. It’s easy to get into a hole by not understanding how credit cards and interest work.
It’s crucial that you pay your debts on a regular basis, even if you’re not able to pay the minimum. Don’t ignore your debt. If you’ve gotten in over your head with a credit card, there are some steps you can take to avoid wage garnishment.
Credit card companies use wage garnishment as a last resort. It costs them money to take you to court. In most states, a court order is necessary before a company garnishes your pay.
So, can a collection agency garnish wages? Yes, but it involves a bunch of legal costs, time and hassle. If what you owe is excessive, credit card companies may still decide to pursue you.
There are some student loan debt forgiveness programs. But don’t assume you’ll avoid making student loan payments. Like any other loan, creditors expect you to pay your student loans in full.
Make sure your student loan isn’t worth more than your potential earning power once you graduate. Don’t take out thousands of dollars in loans to earn a degree in a major unlikely to land you a high-paying job.
You don’t have to make payments on your student loans until you graduate. And it’s possible you can put off making payments until you have secured a job. But keep the lines of communication open.
Don’t make any assumptions. Be sure you know how your loan works. Know when you’ll be expected to start making payments.
How Does Wage Garnishment Work?
Can a collection agency garnish wages in the place where you live? Familiarize yourself with the laws in your state because every state is different.
If you owe on student loans, credit card debt, state or federal taxes, or child support or alimony, your earnings are eligible for garnishment.
A creditor must notify you if they’re taking you to court over a debt. Credit card companies may sell your debt to a collection bureau if they can’t collect on the debt.
If the credit card company or debt collection company can’t collect the debt from you, they may take you to court.
If the debt is legitimate and you’re notified of a lawsuit, call a lawyer or make a deal with the credit card company. Don’t ignore these notices.
Your only other choice is to declare bankruptcy. Bankruptcy makes it hard, though not impossible, to get loans or credit cards in the future. It can also affect future employment with some employers.
Contact Your Creditors
Your creditors want their money. It doesn’t help them if you declare bankruptcy. If you’ve lost your job or had a situation making it impossible to pay your bills, contact your creditors.
It’s possible to work out a payment plan that helps you get out of debt. Once you’ve established a plan that works for you, don’t miss payments. If you’re working with a credit card company, ask them to reduce your interest rate as well.
Sometimes it’s possible to transfer your credit card balance to a low-interest card. There are usually restrictions on balance transfers. Most companies won’t approve a transfer if you’ve fallen way behind on your payments.
Always make some sort of payment toward your debts, even if it’s not the minimum required. This shows a good-faith effort on your part and may stop a collection agency before they trim your wages.
Once there’s a judgment against you, your wages are garnished. This means your employer will take the money out of your paycheck before you’re paid.
Specific funds are exempt from garnishment. Garnishment can’t put you below the poverty line. The amount in your paycheck required to a pay state office, federal, and local taxes is also exempt from garnishment.
State employee retirement and unemployment insurance are also exempt.
Health insurance deductions are not exempt. And, child support, alimony, and federal taxes may tap into your “exempt” funds.
Bank Account Garnishment
Can a collection agency garnish wages from the financial institution you bank with? Money can come out of your bank account as well. Delinquent taxes and child support are the most common situations for wage and bank account garnishment.
If you’re not employed, don’t assume you won’t have to pay. The IRS doesn’t need a court order to take tax money from your bank account. Your bank account can be frozen for weeks or months leaving you without access to your money.
If you own a house, it’s even more important not to fall behind with your creditors. A creditor could put a lien on your home for the amount owed. This means you can’t sell your house until the lien comes off.
If you do sell your house, the creditor gets paid out of your profits.
Keep Up with Your Debts
Learn to budget and live within your means to avoid wage or bank garnishment. If you do fall behind, keep the lines of communication open with your debtors.
Can a collection agency garnish wages? Yes! It’s better to work with the loan or credit card company than to have your wages or bank account garnished.
Do you have questions about personal finance? We’re here to help. Click here to contact us.
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