If you owe money on your mortgage and have stopped making payments, the lender has several ways to collect on the money that you promised to pay. One way to collect this money is through a court order to garnish your wages. The lender can exercise this option even if your house has been foreclosed.
Process of Garnishment
A garnishment is an arrangement in which the court orders an employer to withhold a certain amount of income from the employee's paycheck because of a debt that he owes. A creditor must request a court hearing and notify the debtor of the time and location of the hearing. The debtor receives a summons and complaint that detail the relief requested. If the debtor does not appear at the hearing or does not win the case, the judge will rule in favor of the plaintiff, the lender. The judgment indicates the amount of money that you owe to the creditor. The creditor can then demand a wage garnishment from the court that directs a third party to reroute your wages to the creditor. The garnishment period can last between 30 and 180 days.
If you miss several months of mortgage payments, the bank may decide to foreclose on your property. In 30 states, lenders can seek a deficiency judgment for the amount that they lost on the sale of the house. For example, if you had $200,000 left to pay on the mortgage and the lender sold the house for $150,000, the lender can pursue you for the $50,000 deficit, plus costs and expenses incurred with collection of this debt. Once the lender receives the judgement, the lender can try to collect through wage garnishment and other methods.
If you are unable to make your mortgage payment and pay off other debts, you may decide to file bankruptcy. After you file Chapter 7 or Chapter 13 bankruptcy, a court order is made to stop all forms of collection for the duration of your case. This order stops wage garnishment immediately. Wage garnishment stops for several years if you file for Chapter 13 bankruptcy as you complete your repayment plan. Chapter 7 bankruptcies permanently end wage garnishment.
Amount of Garnishment
A creditor can only take a certain amount of money from your wages. According to Title III of the Consumer Credit Protection Act, an employer can only deduct the lesser of 25 percent of your disposable earnings or the amount of your disposable earnings that are greater than 30 times the amount of the federal minimum wage. For example, if you make $500 a week, 25 percent of this amount is $125. At the current minimum wage of $7.25 an hour, 30 times this amount is $217.50, which would mean that the creditor can collect up to $282.50. However because of the phrase "the lesser of," the creditor would only be able to garnish $125 of the $500 check. Only one creditor can have a garnishment against a borrower at a time.
Timing of Garnishment
A lender does not need to immediately seek garnishment for a borrower's debt. Some states allow lenders to take up to five years to seek a judgment against a borrower after the time that he defaults, but the time limit is determined by each state's statute of limitation. The lender can then take a longer period of time to pursue collection efforts, including wage garnishment against the borrower. This means that once you can begin paying your mortgage payments again or pay off the deficiency, the lender can begin the process of garnishing your wages.
The lender may consider several factors before deciding to pursue a wage garnishment against you. A lender is unlikely to garnish your wages if you are only a month or two behind because of the expense of involving the court system. You may be able to request a temporary forbearance on your mortgage payment while you try to recover from a temporary hardship and a delay in payments may be in the lender's best interest. Additionally, some states particularly prohibit wage garnishment as a way to collect on a judgment.
- CNN Money: You Lost Your House - But You Still Have to Pay
- Lawyers.com: Garnishment and Forcing Debt Payment
- Bills.com: Credit Card Debt and Foreclosure Advice
- Federal Trade Commission: Debt Collection FAQs: A Guide for Consumers
- Bankrate.com: How Wage Garnishment Works
- Legal Aid Society of Eastern Virginia: Collections
- LawNY: What Bill Collectors Can and Cannot Do
- SunSentinel.com: Bank Can Go After Other Assets in Florida if You Default on Mortgage
- Total Bankruptcy: Stop Wage Garnishment
Samantha Kemp is a lawyer for a general practice firm. She has been writing professionally since 2009. Her articles focus on legal issues, personal finance, business and education. Kemp acquired her JD from the University of Arkansas School of Law. She also has degrees in economics and business and teaching.