When you don’t pay a debt, the court may tell your employer to take money out of your paycheck to pay for it. This is called wage garnishment. For example, the IRS can garnish your unemployment benefits if you fail to pay your taxes.
Bankruptcy may be able to stop wage garnishment in some cases, but there are exceptions. For example, people who file for bankruptcy under Chapter 7 may still have child support or alimony payments taken out of their paychecks.
Wage garnishment: how does it work?
Wage garnishment is one way that creditors collect on debts that are in default. When you don’t respond to attempts by creditors to collect what you owe, they may send your debt to collection. Collection agencies have limited time to try to get you to pay the debt before it falls off your credit report. But even after that, ignoring the debt collector and making no effort to pay could result in wage garnishment.
Different creditors have different methods of trying to collect money from debtors. For example, medical and credit card companies often have to file lawsuits to garnish wages. This means that the debtor’s employer will take money out of their paycheck and send it straight to the creditor. In other cases, the judge may rule in favor of the creditor, which results in an order being sent to the debtor’s employer.
The amount of money that can be taken from your paycheck each week through garnishment is limited by law. The maximum amount that can be garnished is either 25% of your disposable income (what’s left after deductions for things like taxes and health insurance) or the amount of your disposable income that is greater than 30 times the current federally-mandated minimum wage.
Are unemployment benefits protected from wage garnishment?
While many people believe that their government benefits are protected from wage garnishment, this is not always the case. These benefits can be garnished for owed child support, taxes, or student loans. Understanding how wage garnishment works and what your options are can help you keep more of your hard-earned money.
State laws on garnishment vary, so the type of benefits that are protected from seizure depends on where you live. Some states have enacted laws exempting stimulus payments from garnishment, for example.
When can unemployment benefits be garnished?
Generally, unemployment benefits are protected from garnishment. However, there are a few exceptions to this rule. Most of the time, the creditor doesn’t need a court order to take the benefits in these situations.
Child or spousal support
As unemployed individuals across the country scramble to make ends meet, they may be surprised to learn that their unemployment benefits could be garnished to pay for outstanding child support payments. Even though the process may be different from state to state, parents who are out of work should know that they still have to pay child support.
Unemployment benefits may be garnished to pay outstanding state taxes in some states. Each state has its own laws governing this issue. In California, for example, unpaid taxes can be cut into a person’s weekly unemployment benefits.
Student loan debt
For delinquent student loans, up to 15% of one’s disposable income may be taken until the debt is paid off or the loans are no longer delinquent. The government does not need a court order to garnish income for federal student loans; however, the creditor must sue you through the courts for private student loans.
Is it possible to protect your wages from garnishment?
There are a few things you can do to avoid wage garnishment. One option, for example, is to consolidate your student loans into one loan. This can help protect you from garnishment. Another approach is to work with your lender to come up with a repayment plan that works for both of you.
Another option is to try and rehabilitate your student loans. This is done by voluntarily entering into an agreement with the loan servicer. Part of this agreement includes making nine consecutive payments in order to bring the loan back into good standing. These payments typically amount to 15 percent of your discretionary income. Another way to stop many forms of wage garnishment is to file for bankruptcy. However, this approach will not always protect your unemployment benefits. For example, filing Chapter 7 bankruptcy will not stop garnishment of child support or alimony payments.
A chapter 13 bankruptcy can help you get relief from garnishments for alimony and child support. With this type of bankruptcy, you’ll create a payment plan to repay your debts over three to five years. As long as you make the payments outlined in the plan, the garnishment action will stop.
The bottom line
Even though you may be unemployed, you still have certain rights when it comes to your wages and benefits. Creditors are not allowed to garnish your unemployment benefits, as long as you don’t have any outstanding debt for child support, taxes, or student loans. However, they can Garnish your wages once you get a new job. To avoid this, try negotiating with them and explain your current financial situation.