You can expect a creditor to seek relief through the courts with the filing of a debt collection lawsuit if you owe money and cannot pay. Receiving a lawsuit from a debt collection agency threatening a judgment against you or a notice that your wages are being garnished is frightening. Questions arise, including:
- how do you defend against a debt collection lawsuit?
- what is a judgment or a default judgment?
- how do you fight a wage garnishment or bank levy, and are any funds or income exempt?
- how much of your hard earned money can a creditor take from your paycheck?
- can the collector take money from your bank account without your permission?
The best way to prevent wage garnishment actions is to be pro-active when dealing with creditors and debt collectors; use your rights under fair debt collection and fair credit laws and take the fight to them before it is too late. Waiting rarely accomplishes anything, try to proactively leverage any violations of your consumer credit rights.
Debt collection lawsuits do not have to end with a judgment entered against you and your wages garnished. Sometimes a creditor will settle the case for less than the face amount in order to save on its own legal fees. And although you can get a fresh start through debt settlement or bankruptcy, creditors will retain certain rights with attorneys working hard to help them collect your money until you do and consumers without the knowledge or resources to combat collection strategies and may end up paying much more than necessary.
Know the law
If you are already being garnished or are about to be you must know the federal wage garnishment rules. Also know the wage garnishment laws and wage garnishment procedures for your state. Federal and state garnishment laws can be used to stop and avoid wage garnishment actions by creditors and collectors.
Wage garnishment (except student loans) is only possible after creditors and collectors obtain a court ordered judgment for such action. The garnishment action, otherwise known as “administrative wage garnishment” can be up to 25 percent of your disposable income.
If you are being threatened by a creditor with a debt collection or wage garnishment you may need the assistance of someone who has years of experience fighting debt collection law to assist you. Consider enrolling in a debt settlement program or filing for bankruptcy even if you do it yourself.
Debt settlement enables you to settle all your debts for significantly less than you presently owe and bankruptcy can discharge most, if not all, of your debts entirely. Creditors are often more willing to work with debt help lawyers than consumers, and your attorney can help you find the best repayment method possible. Many times an attorney is able to negotiate reductions of fees and penalties and work out a repayment plan that protects the debtor’s rights. And until the collector has the judgment against you, you have the ability to negotiate.
What is a Judgment?
A judgment is the final decisive act of a court, defining the rights and obligations of the parties. It includes a decree and any order from which an appeal lies. Judgments can be quite harmful to your financial well-being as they are amongst the most secured debts, usually only dischargeable in bankruptcy.
If you receive a court appearance notice DO NOT ignore it! The only way to protect yourself is to appear in court and present the judge with your side of the story. Go to court prepared to show your good faith efforts in resolving the issue or, in asking for relief in the case of an expired statute of limitations.
What are default judgments?
The term “default” refers to a “failure to act.” When dealing with credit and debt collection issues, default judgments are typically granted because the debtor fails to act, usually by not show up in court when being sued. When you fail to appear in court, the judge usually grants the collector a default judgment.
If you receive a notice that a default judgment has been issued against you, and you were not aware of the court date, immediately go to the court and request copies of all the paperwork. Look for any mistake or misinformation such as an old or wrong address. If you find something wrong contact an attorney and ask for a rehearing.
If you can show that you were not given due process, the judge might just overturn the judgment and then require the collector to file the case properly. Even better is if the debt has expired and you mention the expired statute of limitations, the judge might even dismiss the case.
Can a default judgment be overturned?
When debt collectors win a default judgment it’s possible to have it overturned, overruled, set aside and vacated. These terms simply mean the default judgment is removed and is no longer binding.
In order to have a default judgment overturned you’ll need to prove that the judgment was granted without you being given due process. This generally means you were not able to appear in court for good cause and therefore were not able to properly defend yourself.
Obtain a copy of ALL court documents concerning the default judgment and look them over for any mistakes. Pay close attention to address, notification procedures, dates and names. If you can prove that you were not properly notified or that some emergency prevented you from appearing in court or some other meritorious defense request a rehearing also called a motion to vacate judgment.
Can a judgment from another state be used against me?
It is possible for a foreign judgment to be brought against you and for it to be enforced. For example, a judgment rendered in NY can be domesticated (moved) to Arizona and enforced.
What is judgment proof?
You may be considered “Judgment Proof” during periods of unemployment or while drawing disability pay or disability retired pay. Also, if you have no assets such as home, car, land, and other big-ticket items. In other words, you have no money and can prove it!
Never ignore a lawsuit just because you are broke or have no assets! If a debt collector or creditor is trying to sue and you believe that you are judgment proof, you must respond to the lawsuit as such. Failure to appear and show the judge why you are judgment proof opens the door for the judge to grant the collector a default. Even though they cannot collect anything from you now, they can wait many years and try again. Also, the judgment will show up on your credit report.
Further, judgment-proof really means “execution-proof,” as when creditors and debt collectors win lawsuits, they get the judgment—they just still have to collect, and if you are penniless, you are insulated from execution. But, if you lose your “judgment proof” status (for example due to new employment) the creditor or collector can seek a wage garnishment of up to 25% of your disposable income.
What are wage garnishments?
Garnishing wages is a typical means used to collect debts. Wages can be garnished for a variety of debts, including defaulted accounts, child support, alimony payments and other money judgments. Once live, wage garnishments (and bank levies) are amongst the toughest debts to stop. This is because the wage garnishment procedure occurs near the end of the debt’s lifespan, and unless you want to quit your job or walk from your savings, it is often easier to keep a collector from getting the hooks into you than it is to get them out.
You have options when suffering through a court ordered wage garnishment, an administrative, wage garnishment, a student loan garnishment, or some other form of garnishment or bank account levy. One technique we’ve found effective for gaining leverage over an active wage garnishment is enforcing your consumer protection rights, even if you have paid a garnishment/reached a settlement with regard to a garnishment. Write the details of your story and submit any collection letters or court documents you have for a free, no obligation debt help attorney case review.
Court ordered wage garnishment
This type of garnishment includes wages, bank accounts and other assets. It is a court order directing a party holding funds (such as a bank) or about to pay wages (such as an employer) to set money aside go to the judgment-creditor.
Garnishing funds is also a warning to the party holding the funds (garnishee) not to pay them, and to inform the court as to how much money is being held. If the garnishee (such as a bank or employer) should mistakenly give the money to the account owner or employee, the garnishee could be liable to pay the creditor.
Administrative wage garnishment (AWG)
This wage garnishment procedure is usually a last resort for the U.S. Department of Education (DoE) to recover defaulted student loans. Thirty (30) days prior to the issuance of the “Order of Withholding,” a notice is sent advising a borrower in default of the department’s intent to garnish wages. This notice also contains rights and appeal procedures.
Bank account garnishment/Bank Levy
Bank accounts can be garnished or levied and, when they are, it is almost always a surprise to the debtor. What typically happens is collectors obtain money judgments (usually by default) and then use the judgment to freeze the funds in your bank account.
Collectors always notify the bank first and then notify the debtor, which is perfectly legal. This way your funds are frozen before you can take any action such as withdrawing all your funds. You typically receive the notice (including your rights) a day or two after your funds have been frozen. State and federal banking laws and rules govern how the bank must handle the garnishment process.
In most states, the garnishment can only freeze funds already in your account at the time of service on the financial institution. During the time the garnishment is in effect, the financial institution cannot honor checks or other orders for the payment of money drawn against your account. This means any outstanding checks may bounce or be returned NSF, unless your account has more on deposit than the amount of the garnishment. In this case, the bank can honor checks up to the amount that will reduce your funds below the amount of the garnishment.
When the amount being garnished is paid, the freeze on your account must be terminated.
Federal Wage Garnishment Law
Federal wage garnishment law limits the maximum amount that can be garnished. The limit is either 25% of your disposable earnings for that week or the amount by which disposable earnings for that week exceed thirty times the Federal minimum hourly wage, whichever is less.
“Disposable income” is money left after paying all required payroll taxes and insurances. In general, personal tax and non-tax payments are about 15% of personal income, which makes disposable personal income about 85% of personal income.
There are four general exceptions to the twenty-five percent rule:
- Child support or alimony orders;
- Orders of any court of the United States having jurisdiction over cases under chapter 13 of title 11;
- Any debt due for any State or Federal tax; and
- Defaulted student loans.
If you think you are the victim of an illegal wage garnishment, or other illegal collection efforts, find out if you are entitled to free help and even a cash award.
Are any accounts or income exempt from garnishment or levy?
In most states, state paid disability and private disability insurance payments are exempt from garnishment. The exceptions are generally for current and back child support payments and taxes. Most retired disability is also exempt.
The best thing to do is call your state attorney general’s consumer protection division and ask. Generally, Social Security benefits are also exempt from execution, levy, attachment, garnishment, or other legal process, or from the operation of any bankruptcy or insolvency law. There are certain exceptions to these benefit exemptions, including commingling finds, but if these sorts of benefits have been seized form you, contact a lawyer for a review of your rights.
How much of my wages can be garnished if judgment is entered against me?
The amount you may be garnished varies under state wage garnishment statutes and the federal wage garnishment law, but these laws essentially allow a creditor the right to take money directly from an individual’s paycheck after seeking a court order.
The judge orders the employer to cleave off a certain amount of your disposable income and send it directly to the creditor, usually adding on court fees and other penalties to the base amount. A wage garnishment stays in place as long as the individual is employed and until the full amount plus interest, collection attorney fees and court costs are fully paid.
And although collectors can withdraw funds from your bank account without your approval they are required to have a court order first. If they don’t (and this happens more often than people realize) you may be dealing with an unethical collector. Some of their favorite methods include getting you to authorize post-dated checks or automatic account withdrawals and then withdrawing more than you authorized.
What can I do about an illegal wage garnishment?
You have certain rights and protections when money is taken out of your account without your permission or in an amount different than your permission. Such actions may violate the Fair Debt Collection Practices Act and also violate your rights under the Electronic Fund Transfer Act.
If this occurred, you may be entitled to monetary damages and free attorney representation. The starting point to learn your wage garnishment liability is the federal wage garnishment law, followed by an understanding of your state’s wage garnishment laws and state wage garnishment procedures.