Can Collection Agencies Garnish Your Wages?

A collection agency's goal is to procure payment for old, defaulted debts. If the company cannot coerce you to pay what you owe through persistent telephone calls, collection letters and settlement offers, it may pursue more aggressive collection activity. One way that some collection agencies collect debts from non-responsive debtors is through wage garnishment.

Facts

• Once a wage garnishment order is in place, your employer will withhold a percentage of your wages and submit the withheld funds as payment to the collection agency. The garnishment will continue until you have satisfied your debt to the collection agency or you get a new job. If you switch employers, the collection agency must track down your new employer and submit a new wage garnishment order before garnishment can resume.

Significance

• A collection agency cannot garnish your wages without a court's permission. It obtains the court's permission by suing you. Should the company win the lawsuit, the court will grant it a judgment that it will then use to obtain a wage garnishment order. Although a collection agency can sue you and obtain a judgment against you in any state, some states, such as Pennsylvania, will not allow collection agencies to garnish employee wages except under limited circumstances -- even with a court judgment.

Time Frame

• After winning a lawsuit against you, the company has a limited amount of time to collect the money you owe through garnishment. The length of time a judgment is enforceable depends upon state laws, but once the judgment expires, all garnishment must immediately cease regardless of whether you have paid off your debt in full. Most states allow creditors to renew judgments for a subsequent term. For example, in California, a collection agency has 10 years to collect a debt through wage garnishment. If it does not do so yet renews the judgment before it expires, the court will extend the judgment enforcement period for an additional 10 years.

Considerations

• Although a collection agency can garnish your wages, the U.S. Department of Labor places strict limits on how much a creditor can seize from you each pay period. Your employer must withhold the lesser of 25 percent of disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum hourly wage.

Exemptions

• The term "wage garnishment" applies only to wages you earn from working. According to the U.S. Department of the Treasury, other forms of income, such as Social Security, retirement pension payments, child support and unemployment are exempt from garnishment by collection agencies. Exempt forms of income remain exempt after you deposit them into your bank account. Although bank account garnishment is another collection method creditors holding a judgment have at their disposal, only the federal government can seize federal benefits and other exempt funds from your checking or savings accounts.