After creditors send notices of your past due accounts, make endless calls and show up at your house; they may try to garnish your wages in efforts to collect on a debt. Wage garnishment can lead you deeper into financial trouble, as well as cause problems for the bank and credit union where your funds are kept. When a bank or credit union receives a judgment of wage garnishment, they must determine which funds are exempt from garnishment and freeze the remaining funds. They are also responsible for providing creditors with the funds as outlined by the garnishment order. Not only will you be prevented from accessing your funds, but the bank now has an added responsibility of fulfilling the garnishment order.
States Protecting Consumers
On June 1, 2011, the State Employees’ Credit Union (SECU)of North Carolina banned wage garnishment as a collection practice. The intent is to protect their members from further financial distress when faced with hard times. Although the SECU prohibits creditors from garnishing wages for debt collection, they do allow for wages to be garnished satisfying child or spousal support payments, tax payments or payments resulting from fraud. As North Carolina begins to make changes to protect consumers, the majority of other states still do not offer protection from wage garnishment practices.
Wage garnishment practices vary between states and by bank, you should get to know your states laws regarding garnishment practices. Many states may approve wage garnishment but the bank may prohibit such practices. Moreover, many states prohibit the use of wage garnishment as a collection tool altogether. However, all states and banks approve garnishment for domestic support or tax payments.
Federal Protection For Consumers
For consumers that are not covered under state wage garnishment laws, federal laws can offer some protection to all consumers. Federal laws regulate the amount of money and types of wages that can be garnished by creditors. The Consumer Credit Protection Act (CCPA) protects all consumers by outlining rules for wage garnishment. The CCPA prevents employers from terminating the employment of an individual because of wage garnishment. There are limits to the amount of disposable income, which refers to the amount of income after all taxes, Social Security, and unemployment insurance has been taken out. The amount of wages that is exempt from garnishment is (a) 75 percent of disposable income or (b) the amount up to 30 times the federal minimum hourly wage, per earnings period.
If wages are to be garnished for domestic support payments or tax payments, only 50 percent of disposable wages may be garnished to satisfy these payments. The exception to these restrictions is in the case of tax debts and some bankruptcy orders, in which wage garnishment amounts are determined by the IRS or bankruptcy court.