Wednesday, November 28, 2012

What's the maximum amount of wage garnishment?

The Federal Consumer Credit Protection Act of 1968, as amended in 1977, set national restrictions on wage garnishment, applicable in each of the 50 states. Some states have established greater restrictions, but none may allow lesser restrictions. So, the maximum amount that may be garnished from wages under Federal law is the maximum everywhere in the United States even though the individual states are allowed to provide a lower maximum, and many have done so. In other words, the states may be more debtor-friendly than the Federal law, but they cannot be less so.

The relevant Federal statute is found at 15 USC § 1673 - Restriction on garnishment. "No court of the United States or any State, and no State (or officer or agency thereof), may make, execute, or enforce any order or process in violation of this section." - 15 USC § 1673(c).

Different types of debt - different limits

These Federal law restrictions on wage garnishment do not apply to:
(1) The collection of any Federal or State tax, and;
(2) Orders of a United States judge in a Chapter 13 Bankruptcy proceeding.
        - 15 USC § 1673(b)(1)(B and C).

This Federal statute envisions two different type of debt, and it imposes different limits on wage garnishment for each type, with a few variations:
  1. Court ordered support payments, and;
  2. All other debts.
With either type of debt, wage deductions required by law are subtracted before any garnishment calculation is made. Examples of legally required deductions are federal, state and local income taxes, Medicare tax, Social Security contributions and the employee portion of state unemployment compensation insurance.

Deductions that are not required by law do not count to reduce your disposable income. These include union dues, life and health insurance and most retirement plan contributions.

In short, earnings - taxes = disposable wages subject to garnishment.

Wage garnishment for court ordered support payments

The rules are different depending upon two factors:
  1. If the support payment is more than 12 weeks past due, and;
  2. If you are providing support for a spouse or dependent child in addition to the person covered by the support order.
There are four different combinations of these two factors, and they each have different rules.
  • Support payments 12 weeks past due and no other support obligation
    - 65% of disposable wages may be garnished.
  • Payments 12 weeks past due with another support obligation
    - 55% of disposable wages may be garnished.
  • Support payments up-to-date and no other support obligation
    - 60% of disposable wages may be garnished.
  • Support payments up-to-date with another support obligation
    - 50% of disposable wages may be garnished.

Wage garnishment for all other debts

For all other debts, the maximum wage garnishment amount is 25% of disposable income or thirty times the Federal minimum wage on a weekly basis, whichever is less. It's not that complicated.

Right now the Federal minimum wage is $7.25 per hour. That times thirty equals $217.50 for one week. If your disposable income for one week of work is less than $217.50, then none of it may be garnished to pay general debts.

If your disposable income for one week of work is greater than $217.50, then it is necessary to solve two simple arithmetic problems and then to compare the results.

First, subtract $217.50 from your weekly disposable earnings.

Second, multiply your weekly disposable earnings by 0.25.

Then, whichever is LESS, that's the maximum amount that can be garnished.

Of course, this is all based on weekly earnings. If you get paid once every two weeks or on some other payment schedule, you have to make adjustments.

And remember, different states may offer lower maximums and other types of exemptions.