Perhaps the most intrusive collection action by a debt collector agency or creditor is the garnishment of wages. By nature and design, wage garnishment is unanticipated and unexpected. You will not receive advance notification that a wage garnishment will take effect on your next paycheck. The notification is sent after the garnishment order has been sent to your employer. This surprise element can be devastating, especially for a person who relies on the next check to pay current expenses such as rent or mortgage.What Is a Wage Garnishment?
A wage garnishment is a deduction, for the benefit of a creditor, against your payroll earnings of up to 25% of your gross income (i.e. before deductions for taxes, insurance or retirement contributions).
The funds deducted by your employer must be advanced to the party holding the garnishment order. The deduction will continue until the outstanding balance owed (including interest and costs) is paid in full.When May a Creditor Garnish Your Wages?
A creditor (other than the IRS or child support enforcement agency) may only garnish your wages upon the issuance of a Court order called Writ of Wage Garnishment. To obtain a garnishment order, the creditor must have a judgment against you. In order to obtain a judgment, the creditor must sue you in Court. To that effect, you will be served with a Summons and Complaint by a process server.
It is important to understand that a credit card company or collection agency cannot garnish your wages unless and until they have secured a judgment against you.
If you are served with Court papers (Summons and Complaint), you have 20 days in the State of Florida to file an Answer or Responsive pleading. Due to the ramifications of a judgment, it is in your best interest to be proactive and not ignore any court papers received.
One of the ways to be proactive is to file for Bankruptcy relief. If you file for Bankruptcy, none of your creditors will be allowed to proceed with collection efforts, including the pursuit of a lawsuit or wage garnishment. The garnishment will stop immediately upon the filing of Bankruptcy.
To determine whether Bankruptcy is the best alternative, call us to set up an appointment for a free consultation. You will speak to one of our attorneys who will analyze your set of facts and guide you accordingly. Our office focuses in consumer bankruptcy and our goal is to assist you in your path towards financial stability.What Are Your Options?
- Bankruptcy: The filing of a Bankruptcy stops a garnishment order immediately and stops the prospective deduction of any further moneys from your payroll earnings.
- Claim of Exemption: In the State of Florida, you may be exempt from garnishment of wages, if you meet the standard known as “head of household”. To be head of household, you must provide more than half of the financial support of a minor or other dependent. To request to be exempt from a garnishment order, you will have to file a Claim of Exemption in the case and request a hearing in which the Court will make a determination. If the Court finds that you meet the standard then the percentage of the garnishment may be reduced or the garnishment will be extinguished altogether. Nevertheless, please be aware of the following:
- A judgment in Florida is valid for 10 years and renewable for another 10 years. This means that even if you are now deemed to be head of household and thus exempt from garnishment, this does not mean that you will meet this standard for the duration of the judgment. Thus, the creditor may attempt in the future to garnish your wages and be successful.
- A judgment grows as it accrues interest annually. This means that the judgment creditor may sit dormant for years while the debt grows based on interest.
- Even if you are found to be exempt from a wage garnishment, this does not mean that the creditor cannot engage in other collection efforts. Wage garnishment is only one of many tools a judgment creditor holds to satisfy a judgment. A judgment creditor may also levy money from bank accounts, obtain court orders to seize assets such as vehicles, boats, and other valuables.
- Settlement: you may be able to work out a settlement for a lump sum or enter into a payment arrangement with the garnishing creditor. As part of the arrangement, the creditor may agree to stop the garnishment of your wages and allow you to make payments.
- Lump sum settlements: The notion of settling for a percentage of the debt sounds enticing but take a close look at the actual numbers.
- Outstanding balance may be inflated by interests, late fees and costs: when it comes to consumer credit debt, the average interest rate after default is 29% to 30%. As such, the debt will grow exponentially and easily double or triple in size.
- So are you really settling for 40% of the balance of the debt? Most likely that is not the case.
- In a Chapter 7 Bankruptcy, you may pay nothing or a small fraction of the total debt.
- In a Chapter 13 Bankruptcy, you would pay a percentage of the debt back over a period of 3 to 5 years. Yet this percentage is generally based directly on what you are actually able to pay per month.
- Forgiveness of Indebtedness may be income for tax purposes: in considering the benefits of settlements, take under consideration the potential tax consequences. You may have to declare as income the portion of the debt forgiven on your federal income tax return. Depending on your tax bracket and circumstances, you may have to pay additional taxes based on the amount of debt forgiven in the settlement.
- The filing of Bankruptcy does not trigger the forgiveness of indebtedness issue. Therefore, you will not have to pay federal income taxes on debt discharged in your Bankruptcy case.
- Settlement and credit reporting: if you reach a settlement, the creditor has the right to report on your credit report that the debt was satisfied pursuant to a settlement and for less than what was owed. For credit purposes, this will be construed in a detrimental manner against you and affect your ability to obtain credit.
To determine whether Bankruptcy is the best alternative, call us to set up an appointment for a free consultation. You will speak to one of our attorneys who will analyze your set of facts and guide you accordingly. Our office focuses in consumer bankruptcy and our goal is to assist you in your path towards financial stability.
Please contact us for your FREE consultation at (954) 255-2022 or complete our online form. We offer late appointments on weekdays and we are open on Saturdays to better serve you.