What is the wage garnishment law?
There are both Federal and state laws that limit what creditors and employers can do if you are garnished. The Federal statute controlling wage garnishment is the consumer credit protection act. First, a garnishment can take no more than 25% of a worker’s income under Title III. If there is a second garnishment the second garnishment has to wait to start garnishing.
In some states like Texas, the Carolinas, New Jersey, and Pennsylvania have state wage garnishments limits which are much less or have no wage garnishments.
The CCPA also protects the worker from being fired because of a garnishment. An employer can fire an employee due to multiple garnishments. Often an employer will worry about the possibility of theft and may look for another reason to discharge the employee even though there has been only one garnishment. A garnishment can also make the employer liable for the debt if it fails to withhold.
Some federal laws limit wage garnishments.
The first thirty hours at minimum wage are exempt from garnishment. The garnishment is limited to the net income after taxes which is the disposable income. It is not after deductions for other items such as insurance and retirement. For normal creditors to garnish your wages or bank account you have plenty of notice that you are being sued and time to protect your assets. However, the IRS and Federal Student loans only need to sent notice to the last known address prior to garnishment.
However, domestic support such as a child support order or an order for alimony has no such 25% limitation. In the case of child support and alimony, a worker can have multiple garnishments. The first child support may take up to 50%. If there are two or more child support orders they can take 60%. It is possible for IRS taxes, student loans, and domestic support to be garnished from a social security check. If there was fraud involved with an IRS garnishment, the IRS can garnish 100%.
Kentucky’s Wage Garnishment law is found in KRS 425.506
Kentucky has a 10-day waiting period after the creditor obtains judgment, before the creditor can garnish wages. The creditor has to use a state pre-approved form, which is issued by the clerk of the court after the creditor files it with the court. The court clerk will send this order of garnishment by mail to the employer.
The employer has 20 days to respond. If the garnishee employer fails to withhold wages or answer, it may be held liable to the creditor for the funds. Both the employer can the employee can object to the wage garnishment. Wage and bank garnishments are essentially a lien against a bank account or wages. If the garnished funds are exempt the debtor should object to the garnishment. One example of exempts funds are a bank account with only social security income in it. However, garnishments continue until the debt is fully paid.
Bankruptcy Stops wage garnishments
Filing bankruptcy stops almost all garnishments except a domestic support obligation. It also allows the Debtor to recover funds from recent garnishment orders which were above 600 dollars if money was garnished from a bank account or a wage garnishment. When you file bankruptcy you often have the choice between a Chapter 7 or a Chapter 13. If the debt was an unsecured debt you may want to file a simple Chapter 7 and discharge the debt. The creditor is forever stopped from collection as long as the debt is dischargeable.
However, not all debts are dischargeable. The debt is not normally discharged if it is a student loan, domestic support, or an IRS debt that is less than 3 years old. These debts survive Chapter 7. By filing a Chapter 13 you can repay the debt with reduced penalties and interest and manage it over a 3 to 5 year period. Often if you are trying to avoid an IRS garnishment you will need to file a Chapter 13 to avoid seizures.
Payment plans to stop debt collections
Whether you have an IRS or creditor card debt you can also negotiate a settlement to pay the debt over time to avoid a garnishment. Once the creditor has obtained judgment the creditor can attach a bank account, wages or take property such as a home.
In the case of people who own real estate the creditor files a judicial lien which attaches to any real property the debtor owns. Creditors will often accept a payment plan to stop a wage garnishment if you have not defaulted on a prior plan to pay the debt. They will rarely accept a payment plan to refund or release bank accounts or a judgment lien.
Indiana’s wage garnishment law
Indiana allows garnishment after interrogatories and a motion is filed. Indiana also allows a voluntary wage assignment if you agree to having your wages garnished.