Sometimes life throws us a financial curveball, and we can find ourselves in an unfavorable financial situation. As one struggles month after month trying to scrounge together as much money as possible, they may find that they always end up with too much month left at the end of their paycheck.

As the months go by and creditors continue to call non-stop, it can feel like a never-ending trap. Soon, the constant threats of wage garnishment and lawsuits may come to mind and shake one to the core. To steady oneself and take control of their debt, one must understand the specifics revolving around wage garnishment and lender lawsuits.

What Is Wage Garnishment?

The best way to think about wage garnishment is that it’s similar to personal income tax withholding. Each paycheck, an employer will withhold a certain percentage of an employee’s pay to put towards their yearly personal income tax. Wage garnishment follows the same concept where an employer is required by a court order to withhold a specific percentage of an employee’s earnings.

There are two main categories of garnishment. These include:

Wage Garnishment

This is where an employer withholds a certain amount of money from an employee’s earnings after being issued a Notice of Garnishment.

Non-Wage Garnishment

Also referred to as a bank levy, non-wage garnishment happens when a lender gets a legal order to directly access the funds in a borrower’s bank account.

How Can Garnishment Happen?

When a borrower defaults on their loan or other financial obligation, the lender can sue them for non-payment. As long as there is physical evidence to support the case, a judge will likely award a judgment in favor of the creditor. In cases of non-payment regarding back taxes, federal student loans, and child support, a federal or state agency can initiate a garnishment.

It’s important to note that garnishment will include additional fees like court costs and accrued interest on the debt. Therefore, one can expect to pay more than the initial amount they borrowed from the creditor through the garnishment process.

Garnishment Doesn’t Happen Right Away

When a person defaults on private debt, meaning they stop making payments, a lender will typically wait for three to four months before doing anything with the debt. After this period, most lenders will send the outstanding debt to a debt collector.

The debt collector will typically try to collect on the outstanding debt for up to a year. So, from the time that a person misses their first payment through the time that the debt collector attempts to collect on the debt, about 16 months will pass. After this period, the debt collector may send the debt to an attorney for civil action to be taken.

How Will One Know About A Wage Garnishment?

The local court will send a notification about any impending wage garnishment against a borrower. In addition to the borrower receiving notice, the borrower’s employer and their bank will receive a notification of the garnishment. Once a judge approves the garnishment, the money will start to be withheld within 5 to 30 days.

Wage garnishment will continue until the debt is paid off, the debt is otherwise resolved via settlement, or the statute of limitations is expired. Each state has its own statutes of limitations regarding the amount of time that a creditor can garnish a borrower’s wages.

Settling Before Going To Court

The Sheriff’s Office will typically deliver a notification of the lawsuit. Depending on the state that one lives in, they’ll have between 20 and 30 days to respond to the lawsuit. During this time, they may set up a repayment plan with the lender or settle for a lump sum payment to avoid a judgment.

If the borrower doesn’t respond to the lawsuit within the given time period, the judge will give a default judgment. The judgment is typically given in the creditor’s favor, assuming they have the right supporting evidence. Once a judgment is given, the process of wage garnishment can get underway.

How Much Of A Paycheck Can Be Garnished?

There’s no hard and fast rule for the percentage or amount of a borrower’s paycheck that can be garnished. The federal laws limit the garnishment amount based on how much money a person makes and the type of debt that the garnishment is for. In addition, some state laws limit the amount by factors like whether or not the borrower is the head of their household and if they have any dependent children.