If you have defaulted on a loan and been sued by a lender, you are probably wondering what will happen next.
Very often, a payment plan will be set up at the time of the judgment. As long as you make your payments on time you will be in good shape. If you do not, you can expect the lender to seek an IRS wage garnishment against you. This is also sometimes called a wage attachment.
The creditor will request a garnishment award from the courts. Once they have this, it will be sent directly to your employer. You will have only twenty days before money starts being withdrawn from your paycheck.
Any regular income can be affected by an IRS wage garnish. This includes wages, commissions, bonuses and retirement income. Tips are typically not subject to garnishment. Also, if you are on welfare and working under a work incentive program, your wages cannot be attached.
The IRS wage garnishment formula is a bit complicated. For this reason, if at all possible, you should sit down with your employer and find out how they are calculating your deductions.
Most states have their own IRS wage garnishment limit. As a general rule, unless the judgment if for child support, the creditor can not receive more than the lesser of 25% of your disposable earnings or the amount by with disposable earnings are greater than 30x the minimum wage. (This is currently $7.25 and hour as of July, 24, 2009) If your income is less than this, the creditor will get nothing.
If the judgment is for child support, the IRS wage garnishment maximum goes increases. Up to 50% of disposable earnings may be taken if you are currently supporting another spouse or child and 60% if you are not.
Disposable earnings is the amount you have left over after social security, unemployment insurance and federal, state and local taxes are deducted from your paycheck.
If this is your first garnishment, you do not need to worry about being fired because of it. Title III of the Consumer Credit protection ACT prohibits an employer for firing employee for the garnishment of a single debt. (There is no protection if you receive garnishments for multiple debts.)
You can petition the court to take less out of your paycheck. If you do this, a hearing will be set during which the courts will listen to your argument as to why you need to be left with more money. It is best that you have a budget prepared and go in with the facts as to why you should be left with more cash.
Obviously, dealing with garnishments is not a pleasant experience. For this reason, it is always best to attempt to negotiate with your creditors before it gets to that point. You can very often stop IRS wage garnishment before it happens, by negotiating a payment plan.
Knowing your Credit Rights is critical when you are facing any type of credit challenge.
