ADP, a payroll services provider, reported that in 2017 one in fourteen American workers had wages garnished.
Out of that one in fourteen, a little over a tenth had more than one. If you are part of Gen X, you are in the group with the highest rate of wage garnishment -- 10% of your demographic has their wages garnished, sometimes from multiple creditors.
How can anyone know that? Because wage garnishment is a matter of public record.
Garnishment Records Last for Years
Wage garnishments are in the public record, and they stay there for up to seven years. Anyone accessing your records can see it because it takes a federal court order for anyone to garnish your wages.
That being said, in 2017, the three major credit bureaus - Transunion, Equifax, and Experian - agreed to remove civil judgments and tax liens from the public records section of their credit reports. However, they cannot remove it from the actual public record. So, if someone pulls your credit report, the wage garnishment won’t show.
However, if you apply for a home loan, the mortgage company is going to find out anyway because lenders also look at your current income, past three tax returns, and employment history.
Plus, the payments you missed that may have caused the garnishment in the first place are still on your record, too. Those missed payments also don’t drop off your record until seven years past the first missed payment.
So, even if the judgment doesn’t show up on your credit report, it can still be seen on a public record.
What Is Wage Garnishment and What Does It Affect?
Wage garnishment is a form of forced debt collection. Your employer is sent the results of a judgment against you and instructed to set aside a certain amount of your paycheck. Then your employer sends it to the creditor to reduce your debt. The garnishment keeps going until the debt is paid off.
Wage garnishment occurs with personal earnings, including salaries, wages, bonuses, commissions, and income from pension and retirement income. Tips, however, are usually excluded from personal earnings and are not available for garnishment.
There is non-wage garnishment, but it goes under the name of a bank levy.
Wage garnishment can impact your credit score indirectly because the things that lead up to the garnishment, like late payments, also hurt your credit score.
Other things wage garnishment can affect include:
- Alimony and child support
- Student loans
- Consumer debt like applications for a loan or home rental
That’s right, wage garnishment also impacts your employer, making extra work.
The Wage Garnishment Process
Common reasons for wage garnishment include:
- Companies suing consumers for non-payment of consumer debt
- Banks suing for foreclosure
- Insurance or healthcare providers suing for medical bill non-payment
Many creditors must go through the courts to get a wage garnishment order, but not all of them. Your wages can be garnished without a court order to pay outstanding federal or state income tax, child support and alimony, and student loans in default.
The IRS limits how much it will garnish for unpaid taxes. Although the agency has a reputation for heartlessness, it does take into account children or spouses you support. States also consider these factors at their level.
The IRS must provide ample written notice in advance of garnishment — you receive a first, second, and final notice. You have 30 days after the final notice to fix things before your wages are garnished. The letters tell you about your rights, including the right to appeal the court order.
Unfortunately, up to half of your disposable earnings can be garnished for child support and alimony if you support an additional child or spouse.
If you are not supporting another child or spouse, the court can garnish up to 60%. Not only that, but an additional 5% can be taken if you are more than 12 weeks in default on your support payments. Yikes.
The US Department of Education can garnish up to 15% of your disposable income to pay for student loans. You receive a 30-day notice before the garnishment begins. You also receive a detailed account of how much you owe and how to pursue a court hearing.
If you owe someone other than the IRS, state tax department, an ex-spouse or child, or the Department of Education, that entity must have a court order to allow the garnishment.
A creditor can sue a consumer for non-payment of consumer debt. If the consumer doesn't respond to the lawsuit, the court makes a default judgment allowing immediate wage garnishment.
The good news is that your employer cannot fire you because someone is garnishing your wages. The bad news is that you are only protected from one garnishment. There is no job protection for someone who has multiple wage garnishments against them.
Can Wage Garnishment Be Stopped?
You can fight it in court. Just know that if you lose, a judgment is set against you.
You can negotiate with your creditors and set up an agreeable payment plan. Figure out how much you can pay based on what you owe and then use it as leverage to negotiate a monthly payment.
If you have some extra cash lying around, add it as a lump sum payment to sweeten the pot. The creditor may agree just because it won’t have to pay legal fees and court costs.
An installment agreement with the IRS can stop wage garnishment, as can paying your entire tax debt all at once. If you just can't afford it, you may be able to get an Offer in Compromise and pay a reduced tax bill.
Or you might get a financial hardship exemption and go on Currently Not Collectible status. It isn’t permanent, though. It just delays the inevitable.
You can declare bankruptcy. Bankruptcy stops collection on most debts, including garnishment. But you want to leave it as a last resort. Not all bankruptcy stops wage garnishment, and not all tax debt is discharged in bankruptcy.
The craziest thing you can do, and we don’t recommend it, is to quit your job and change employers. The wage garnishment stops, but only temporarily. The IRS has a particular set of skills, and it will find you. Then they reissue the garnishment order, and you're back where you started.
To Sum Up
Yes, wage garnishment is public record. The credit bureaus can remove it from a section of your credit report, but it is still part of the public record.
The only way to get rid of wage garnishment is to pay off your debt one way or another – through an installment plan or other means. If you need help with any of the garnishment process, contact Top Tax Defenders.