Falling behind on your bills could result in a smaller paycheck. When you owe a creditor money, it may utilize legal avenues to force repayment from your paycheck without your authorization. To put salt in the wound, civil judgments can tack on interest and court costs up to the statutory allowed amount. Whether a wage garnishment collects interest depends on the type of debt and your state laws.
In order to garnish your wages for a private debt, the creditor must take you to civil court in your county of residence and obtain a judgment against you. If you don't appear before the judge and defend your case, a default judgment is issued. With a judgment in hand, the creditor can apply for a wage garnishment order or a bank levy and take a part of your check each payday until your debt is paid in full. Federal law allows garnishment of up to 25 percent, but your state may place further restrictions on that amount.
Tax levies and support orders are a separate type of debt that can garnish your wages. Tax levies do not require a lawsuit in order to commence. The IRS sends a notice that it intends to collect its debt and gives you the option to request a hearing. Failure to request that hearing results in a wage garnishment to pay the debt. Fall behind on your spousal or child support and you could also face interest charges. Past-due support may be subject to interest charges, depending on your state of residence. According to the National Conference of Legislatures, at least 35 states allow interest charges on late child support payments.
Interest & Court Costs
The amount of interest charged on varies depending on your state of residence. You could end up paying anywhere between 2 percent and 18 percent, depending on your state. To make matters worse, many states allow creditors to pass on court costs to the debtor, further inflating the total amount owed.
Your Credit Score
Not only do wage garnishments hurt your bottom line, they could hurt your credit score. Civil judgments are recorded on your credit report for up to seven years. Derogatory information can hinder your ability to get a mortgage, auto loan or credit cards. Always try to resolve your debts before it comes to civil action to lower the negative impact on your credit score.
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