All You Need To Know About Wage Garnishment

Q: I have several outstanding debts and I’m starting to worry about wage garnishment.young man looking over bills - concerned What do I need to know? Is there any way I can protect myself if my wages get garnished?

A: Wage garnishment is the process in which funds are deducted from a person’s salary to pay for their outstanding debts

If you owe lots of money, don’t panic; you can prevent a wage garnishment by working out a manageable payment plan with those you owe money to (your creditors). In the event that your wages are garnished, there are steps you can take to reverse the process.

Read on to have all your questions about wage garnishment answered.

How does the wage garnishment process work?

Unless you owe child support, back taxes or student loans, creditors require a court order to garnish your wages. These creditors can include credit card companies; medical facilities, agencies or hospitals; auto loan creditors and more. To garnish your wages, creditors will have to sue you, win the case against you and receive the court order to move forward with the garnishment process.

Once the court order is in a creditor’s hands, they must send you written notification of the wage garnishment at least 30 days before the garnishment is set to begin. The notice must include the following information:

  • Exactly how much money you owe the creditor
  • Instructions for how you can obtain a copy of the loan records
  • Instructions for entering into a voluntary repayment schedule
  • Instructions for requesting a hearing on the planned garnishment

The creditor will then forward a copy of the court order to your employer, who will withhold the garnished amount from your next paycheck. This way, your creditors are getting their due. Unfortunately, that means making do with a skimpier paycheck.

Under federal law, your employer cannot fire you for a wage garnishment. However, if you have multiple garnishments, or a single creditor has garnished your wages for two or more debts, you are no longer protected against retaliation.

How much of my wages can be garnished?

There are strict federal laws limiting the amount of money creditors can skim off your paycheck. By law, creditors of consumer debt can only garnish 25% of your take-home pay, or the amount by which your weekly wages exceed 30 times the minimum wage, whichever amount is lower. Some states have even stricter guidelines and set a lower percentage limit for wage garnishments. When state and federal laws surrounding wage garnishment are in conflict, the law falls on the side that is more favorable to the employee.

Other kinds of debt can have higher maximums for wage garnishment, as detailed below.

What are the most common types of wage garnishment?

The following three wage garnishments are the most common and don’t require a court order:

1.) Child support and alimony

All new or modified child support orders include an automatic wage withholding order.

After the court has ordered you to pay child support, the court or the child’s other parent must send a copy of the order to your employer. The employer is then responsible for garnishing the specified amount from your paycheck and sending it to the child’s other parent. If the court has made you responsible for maintaining health insurance coverage for your child, payments to fund the coverage will be deducted from your paycheck as well.

The amount of money garnished from your earnings for child support varies with circumstance, but it can be as high as 65%.

2.) Defaulted student loans

If you default on your student loan, the U.S. Department of Education, or an agency collecting money on its behalf, can garnish up to 15% of your income.

3.) Back taxes

If you owe money to the IRS, the federal tax agency can help itself to a chunk of your income without obtaining a court order. The percentage of your salary it’ll leave for you varies with the number of dependents you have and the amount of your standard deduction.

To garnish your wages, the IRS is required to send a wage levy notice to your employer, who must provide you with a copy. The notice you receive will include an exemption claim form for you to complete and return.

State tax agencies can also lawfully take a chunk off your salary, though state laws vary regarding how much they can collect.

Can I protest a wage garnishment?

There is always a course of action that’s open to you when you’re the subject of wage garnishment. To protest a wage garnishment, you’ll need to file papers with the court for a hearing date. At your scheduled hearing, you can then present evidence demonstrating that you need more of your paycheck to pay your expenses or that you qualify for an exemption. The judge will then decide to terminate the garnishment or leave it in effect.

Of course, it’s best to avoid having your wages threatened by garnishment in the first place. Once a creditor wins a lawsuit against you, judges tend to be unsympathetic and getting a garnishment lifted can be difficult.

If you’re in over your head with debt, we can help! Call, click or stop by Destinations Credit Union to talk about our debt counseling services and more.  We have recently opened an Operation HOPE Inside office at our Parkville location. The HOPE Inside model, created by financial dignity nonprofit Operation HOPE, provides no-cost one-on-one financial literacy coaching, workshops, and education programming to participants through the support of financial and corporate partners. Destinations is the first credit union in the country to offer this service. Credit and Money Management, a core program of the HOPE Inside adult offering, is provided at this location. The Credit and Money Management Program is designed to transform disabling financial mindsets—teaching people the language of money, how to navigate credit, and make better decisions with the money they have.

Your Turn: Have you ever been the subject of a wage garnishment? Share your experience with us in the comments!

SOURCES:
https://www.garnishmentlaws.org/wage-garnishment-facts/

https://www.garnishmentlaws.org/what-types-of-income-can-be-garnished/
https://www.nolo.com/legal-encyclopedia/if-wages-are-garnished-rights-33050.html

Financial Tips For Single Parents

Smart money management is always important, but it can take on more urgency for mom and childthose who are without a partner. Whether you’re divorced, widowed, or single by choice, single parenting brings unique budgeting challenges.

Marilyn Timbers, a Connecticut-based financial advisor, says of having to raise a child on one income: “Children are a joy, but they do not come cheap.” The U.S. Department of Agriculture notes in a report that it costs an estimated $241,080 for a middle-income couple to raise a child to age 18, and some single parents have to shoulder that responsibility alone. Even if child support is adequate – unfortunately nearly 50% of that support is never paid – you’ll do yourself a favor if you think ahead about financial matters as a single mom or dad.

Estate planning is your first priority, according to Lisa Hay of Ascend Financial. It’s essential to make arrangements for your children should you become incapacitated, and this means spending time on two documents that no one enjoys thinking about: a will, which specifies a guardian for your children and how you’ll pass assets down to them; and a “power of attorney,” which gives someone the legal right to make decisions on your behalf if you’re unable to do so.

You may also want to set up a trust. A trust is a legal structure in which your assets can be held for the children. It is overseen by a trustee. And check with your employer to see if it offers a disability benefit. Generally, you will get a reduced income amount when you claim disability – anywhere from 50% to 70% of your salary. “Your income is your most important asset,” says Tom Morrill, owner of Morrill Insurance Group. Insuring it can be especially crucial for single parents who don’t have a second income to cover a gap.

Hay also says be sure to have life insurance. What you purchase will depend on your finances, but a term policy is most economical because it’s a straightforward death benefit. A healthy 33-year-old woman, for example, would pay roughly $240 a year for a 20-year term, $500,000 life insurance policy. This would get your child through college should something happen to you.

Health insurance is “the number one insurance need for a single parent,” according to Morrill, who considers life insurance a close second. People often complain about the cost, but if you’re uninsured, a serious medical procedure or hospital stay can be disastrous to your finances. And, of course, losing a job or becoming ill is still more catastrophic as a single parent than as part of a two-income couple. A recent Harvard study revealed that 62 percent of bankruptcies were caused by medical debt. You can comparison-shop for policies at your state’s marketplace or at HealthCare.gov.

Along with the rest of your boring-but-necessary financial thinking, don’t forget about tax breaks. If you’re a single parent, you should probably file as head of household (not as single) because you’ll often pay less and get to claim a higher standard deduction. You can also claim exemptions for yourself and each qualifying child. You also might qualify for the earned income tax credit, the child and dependent care credit (if you pay someone to care for your kids), and the child tax credit.

As far as day-to-day household operations, here are a few more things to keep in mind:

  • Credit cards – In The Financial Guide for Single Parents Workbook, Larry Burkett warns single parents that, while credit cards may seem like an easy way to fill in the gaps of a decreased income, it’s wise to avoid using them as much as possible.
  • Shopping in general – Many single parents have to make lifestyle adjustments after a divorce or the death of a spouse. You may need to consider moving or changing your spending habits. Burkett notes that lots of people like to go shopping to cheer themselves up, but the added debt you’ll incur will only make you feel worse. This even applies to groceries, which are an expensive part of the budget. Plan that trip carefully, too, so you can better avoid impulse buying.
  • Holidays – Guilt causes many single parents to overindulge their children, even if they can’t afford it. This is especially true during holidays and birthdays. Be sure to set designated amounts for gifts, and stay within the budget.
  • Ask for help – Check with your credit union for financial advice. And there are many nonprofit organizations with programs specifically designed for single parents.

Whatever your income, it’s important to give yourself a safety net, because emergencies happen. Put aside a little bit of money from each paycheck to set up an emergency fund for car repairs, broken refrigerators and other realities of life. As a general rule, experts recommend having six months’ worth of non-discretionary expenses in an account that is separate from the one you use for daily expenses. That could be a savings account or possibly a low-risk investment account.

Bucket budgeting can help, says Jan Cullinane, author of AARP’s The Single Woman’s Guide to Retirement. That means creating four different accounts: one for fixed monthly expenses such as food and bills, another for long-term expenses like retirement or replacing appliances, a third for emergencies and a fourth for discretionary spending.

“Put the appropriate amount of money into the first three, and whatever is left is your discretionary or ‘fun’ spending,” says Cullinane. “If there is nothing left for that month in the ‘fun’ bucket, you simply go without – you don’t dip into the other buckets. Harsh, but necessary.”

And it’s more doable than you’d think. One study asked people if they could save 20 percent of their income. Most respondents said no. But, when asked if they could live on 80 percent of their income, most said yes. “Be aware of how you frame questions to yourself,” Cullinane says. “You might be surprised.”

Your Turn: Have you faced tough questions and financial circumstances as a single parent? What were the most useful solutions you found?

SOURCES:
http://www.familyminute.com/articles/parenting/single-parenting/financial-pitfalls-for-the-single-parent/#.WTnLa2jyvIU 

http://money.usnews.com/money/personal-finance/articles/2013/10/17/the-best-budgeting-strategies-for-single-parents 
http://www.cheatsheet.com/personal-finance/5-personal-finance-tips-for-single-parents.html/?a=viewall 
https://www.betterment.com/resources/life/family/7-financial-planning-tips-single-parents/ 
http://abcnews.go.com/Business/top-financial-planning-tips-single-parents/story?id=20906018#