What are Garnishments in Payroll?
Financial difficulties that prevent you from paying your bills can arise for various reasons, such as income loss, surprise medical bills, or other unexpected setbacks. Unfortunately, if an inability to pay your debts has led to wage garnishment, it can be even more difficult to get back on your feet. Sometimes our clients have questions about wage garnishment, bankruptcy, and debt resolution options.
What is Garnishment?
Garnishment is a court-ordered method of collecting on a debt. If a person gets behind on their payments for any reason, the creditor can go to court and seek relief. If a judgment is found against the person with debt, garnishment is the process of taking money out of their paycheck each week until the debt is paid. Governmental agencies like the IRS can also issue garnishment orders.
Many financial situations can lead to wage garnishment. In general, whenever you cannot pay a bill for several months at a time, you may be at risk of having your wages garnished. If you’re currently struggling with such a situation, we recommend speaking to a financial attorney to learn about your options as soon as possible. This may help you to avoid wage garnishment and other complications in some circumstances.
Here are some common examples of issues that may result in wage garnishment:
- Past due child support or alimony
- Unpaid taxes (federal, state, or local)
- Federal student loans that you’ve defaulted on
- Overdue credit card bills
- Unpaid medical bills
The court will send a garnishment order to the person’s employer, asking the employer to hold a percentage of the garnishee’s wages from each check. These withheld funds should only be taken from the disposable earnings in that pay period. Disposable earnings means income after required deductions (taxes). Disposable income does not include non-required deductions like health insurance and retirement plan contributions, so it is not necessarily the same as net pay.
Under the Consumer Credit Protection Act, there are federal limits to how much each check can be garnished, depending on the kind of debt:
- For a judgment creditor, or an entity that won a monetary award in a lawsuit, the garnishment can’t exceed 25 percent of the garnishee’s disposable earnings, or the amount by which your disposable income exceeds 30 times the federal minimum wage.
- In child support and alimony orders, up to 60 percent of the garnishee’s disposable earnings can be garnished if they have no other dependents. If they have other dependents, 50 percent of their disposable earnings can be garnished.
- Certain government agencies can garnish up to 15 percent of the garnishee’s disposable income for non-tax debts. The Department of Education, for example, can take up to 10 percent for defaulted student loans.
- There is no limit on garnishment for bankruptcy court orders or taxes.
Wage Garnishment Laws By State
New Mexico limits garnishments to either 25 percent of your disposable income or the amount by which your disposable earnings surpass 40 times the federal minimum wage, whichever is a lower amount.
Does an Employer Have to Notify the Employee of Garnishment?
Yes. Once the employer receives the garnishment order, they are required to notify you of the garnishment and provide you with information on how to protest the order. As soon as you receive this garnishment notice, it’s a good idea to contact an attorney for advice on how to move forward. You may be able to file an exemption claim or an objection to the garnishment, and your lawyer can help ensure you go through the proper steps to do this correctly.
How To Stop Payroll Garnishment
Payroll garnishment should stop when the debt is repaid. Typically your employer will receive notification of when to stop withholding wages. Either they will be given start and end dates for the garnishment, or they will be notified in writing when they should stop.
But garnishment can be a hardship, even with the limits put in place to protect garnishees. If you want to get the garnishment stopped sooner, please talk to a bankruptcy attorney as soon as possible. There may be several options, depending on your situation.
How to Stop Payroll Garnishment – Is Bankruptcy an Option?
Yes, but in some cases, it will not be as helpful. Many of the debts wage garnishment is used for are exempt from bankruptcy proceedings – taxes, child support, alimony, and student loans. But if you have garnishment for medical debt or credit card bills, these may be wiped out in a bankruptcy filing.
Student loans are usually exempt from bankruptcy, meaning they will not be erased with other debt, but in some situations, you may be able to get them cleared if paying them is causing you “undue hardship.” This will require you to prove that the wage garnishment or loan payments are preventing you from providing the most basic standard of living for yourself and any dependents you have. Your bankruptcy attorney can advise you on whether bankruptcy is likely to help your wage garnishment situation.
New Mexico Financial and Family Law: How a Bankruptcy Attorney Can Help With Wage Garnishment
While wage garnishment does provide a path to paying off debt, it’s not always an ideal situation. It can be a problem if you’ve got other debts to pay off. Ironically, many clients tell us that they got into debt in the first place because they didn’t have enough take-home pay to cover their bills. With even smaller paychecks due to wage garnishment, they may default on even more debts, creating a larger financial problem. This can lead to a domino effect in which debt leads to more debt, and some people are afraid they’ll never get out of it.
This can be an extremely stressful experience, but you don’t have to be overwhelmed – help is available when you call a financial and bankruptcy attorney. They can help you understand the options for ending wage garnishments and improving your financial future, putting you back in control of your situation. Please contact us at New Mexico Financial and Family Law at (505) 503-1637 for a free consultation about your needs.