Paychecks are usually a cause of celebration. Even a small paycheck means you have a little more money than you had the day before, and you come to expect a certain amount every time. Then comes the day you open your paycheck and find it's for less money than before -- maybe a lot less. It could be that a creditor has garnished part of your paycheck. As bad as the shock of the smaller dollar amount is, it is not the only negative thing about this situation.
Garnishment procedures vary depending on the creditor. If you owe back taxes, or if you've fallen behind on child support payments, your wages can be garnished automatically by the government. In other words, government agencies can use administrative garnishment to garnish your wages without having to get a court order. Other types of creditors, such as credit card companies and private student loan lenders, must obtain a garnishment order through court. Although you might think you're the garnishee -- that is, the one being garnished -- by law, your employer is actually the garnishee when a creditor obtains a wage garnishment order against you.
Since the employer must make deductions from your paychecks, liability for failure to comply with a garnishment order falls on the employer's shoulders. This is why your employer can terminate you if you receive more than one garnishment order. That's not a comfortable thought, but it's no reason to panic. Employers are within their federal rights to terminate the employee, but don't automatically do so. Every employer is free to set its own policy and judge each employee's situation individually.
Lower Credit Scores
Unfortunately, garnishment orders are a matter of public record, which means credit reporting agencies can find out about them. Because garnishment is a result of debt default, it has a negative impact on your credit score. If you have more than one garnishment order, it's safe to say credit reporting agencies will hear about every one of them. Once you've satisfied a garnishment order by paying off your debt through paycheck deductions, your credit score should improve if your debt-to-income ratio doesn't change.
Generally speaking, creditors can't garnish more than 25 percent of your gross earnings after mandatory deductions. In other words, if you pay mandatory union dues, Social Security, and state or federal taxes, your creditor can't take more than 25 percent of whatever is left of your earnings. If you have more than one garnishment, total garnishment deductions still can't exceed 25 percent of gross earnings after mandatory deductions. The Internal Revenue Service and child support creditors, however, can take up to 50 percent of gross earnings.
Don't be upset with your employer if you made the unfortunate discovery of a garnishment on your check. Oftentimes, this happens because the garnishment order is served to your employer. The employer had to comply with that order, and is not under any obligation to notify you. Payroll departments have copies of garnishment orders with details regarding the creditor and the judgment amount. You will need to speak to someone in payroll to get a rough idea of how long it will take to satisfy the garnishment order.
- U.S. Department of Education: Employer’s Garnishment Handbook
- U.S. Department of Education: Administrative Wage Garnishment - A Guide For Employers
- U.S. Department of Labor: Fact Sheet #30 - The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title 3 (CCPA)
- Bankrate.com: How Wage Garnishment Works
- Credit Karma: Public Records on Your Credit Report