If you allow a debt to become severely delinquent (e.g., more than six months late), your creditor may be able to garnish your wages to recover the debt. Unless you owe federal student loans, taxes or child support, the creditor must typically win a lawsuit against you before executing a wage garnishment. Federal and state laws both limit the maximum percentage of your earnings a creditor may garnish.
Private Debts
Federal law limits garnishment for private debts -- such as credit cards, auto loans and lines of credit -- to 25 percent of your disposable earnings. Only statutory deductions, such as taxes and social security payments, reduce your income for the purpose of determining disposable earnings; health insurance and 401(k) deductions do not count. Federal law protects all of your income against garnishment if your weekly earnings are less than 30 times the federal minimum wage.
Taxes and Child Support
The standard federal wage garnishment limitations do not apply if you owe back child support, or unpaid federal or state taxes. Up to 50 percent of your disposable earnings may be garnished to repay these debts if you currently support a spouse or child living in your home. Otherwise, federal law permits garnishment of up to 60 percent of your disposable income.
State Limitations
Federal law permits individual states to impose garnishment restrictions that protect a greater percentage of your wages than federal law protects. Four states -- Pennsylvania, South Carolina, Texas and North Carolina -- prohibit wage garnishment for most private debts, which means that most creditors can't take your earnings in these states. Other states permit wage garnishment of less than 25 percent; for example, Delaware allows garnishment of 15 percent of your earnings, while New York allows only 10 percent. States cannot permit garnishment percentages greater than those allowed by federal law.
Avoiding Garnishment
Cooperating with your creditor can help you avoid the significant decrease in take-home pay that results from wage garnishment. Because filing a lawsuit and executing a wage garnishment order is expensive and time consuming, creditors will generally prefer to work with you to settle your delinquent debt. You may be able to settle your debt for less than the full amount, or negotiate a repayment plan, to avoid judgment and garnishment.
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