A wage garnishment is any legal procedure in which some portion of a person’s earnings is required to be withheld by an employer for the payment of a debt. A wage garnishment typically only takes effect after a court order when a borrower is in default. An employee can choose to have their wages garnished on their own so that they may pay off a debt, but this is not considered a wage garnishment. The federal law that determines wage garnishment is as follows.
- Title III of the Consumer Credit Protection(pdf) prevents the employees wages from being garnished beyond a certain percentage, and also protects the employee from being fired if pay is garnished for only one debt.
- Title III protects everyone who receives wages, salaries, commissions, bonuses or other forms of income. Tips are typically excluded from the wage garnishment Law.
Being terminated from employment is also protected by law. The Consumer Credit Protection Act protects employees from being fired for any one Wage Garnishment, but does not protect them from termination if there are two or more debt being garnished seperately.
Wage Garnishment Restrictions
A persons income that is subject to Wage Garnishment would be based on their disposable income, and not their gross income. Any deductions that are a legal responsibility are not included in the Wage Garnishment. This can include:
- Federal, state and local taxes
- Unemployment insurance
- Social security
- Retirement systems required by law
These deductions may not be legal deductions and can be subject to Wage Garnishment:
- Union dues
- Health, life and other insurance policies
- Charitable Donations
- Investments for retirement not required by law
How Is Wage Garnishment Calculated?
The CCPA sets a maximum amount that someone can be subject to Wage Garnishment regardless of the amount of garnishment orders on any one person. This calculation is based upon the Federal Minimum Wage which is currently set at $7.25. The weekly amount can not exceed the lesser of two calculations:
- The employee can be subject to a 25% Wage Garnishment, OR subject to their income that is over 30 times the Federal Minimum Wage.
What this means is any wages over $217.50 can be subject to Wage Garnishment of a maximum of 25%. $217.50 is determined by this calculation:
- $7.25 x 30 = $217.50
If a pay period is two weeks, then it would be 60 times the Federal Minimum Wage, etc. The wage garnishment law specifies that the garnishment restrictions do not apply to certain bankruptcy court orders, or to debts due for federal or state taxes. The Debt Collection Improvement Act allows collection agencies who are under contract with the US Government to collect up to 15% of disposable income. The Higher Education Act allows collection agencies in contract with the Department of Education to collect up to 10% of disposable income.
Social Security Garnishment – Can They Really???
The short answer is yes, Social Security benefits can be garnished to repay federal student loans. Section 129 (Benefits Not Transferable) in the Social Security Administration Handbook clearly lays out what is allowed regarding garnishment in paragraph 129.2.
“If you have any unpaid Federal taxes, the Internal Revenue Service can levy your Social Security benefits. Your benefits can also be garnished in order to collect unpaid child support and or alimony. Your benefits may also be garnished in response to Court Ordered Victims Restitution. SSI payments cannot be levied or garnished. Treasury’s Financial Management Service can also offset, or reduce, your Social Security benefits to collect delinquent debts owed to other Federal agencies, such as student loans owed to the Department of Education.”
This doesn’t mean that all, half or even a quarter of a person’s Social Security check can be garnished for a student loan in default. Since this is considered a non-tax debt, that means the first $750 in monthly benefits is completely off-limits. For example, a monthly check of $850 is garnished at 15 percent (the maximum percent allowed) for a total of $127.50. However, this leaves the person receiving the check a total of only $722.50 in monthly benefits. Since this exceeds the $750 limitation, the total amount that can be garnished is only $100.00. It should be noted that even this garnishment does not apply to lump sum death benefits or Social Security benefits paid to children.
Time is no restriction on the garnishment of Social Security benefits for a federal student loan either. Back in 2005, the Supreme Court (Lockhart v U.S.) decided that there is no statute of limitations to observe when collecting a student loan debt. In doing so, the Supreme Court decided that the Higher Education Opportunity Act took precedence over both the Social Security Act and the Debt Collection Act. This allowed the Education Department to collect debts that had been outstanding for over ten years
This applies only to federal student loans. If a person has student loans from a bank or other private lending institution, that organization cannot touch social security benefits. This also includes state agencies. If a loan collector for such an institution even implies that they can, the person and his agency should be reported to the lender immediately. Banks want their money, but lying in order to collect a debt is against the law.
Garnishments cannot be applied to Social Security benefits without notification. A person who receives the first notice of intent to garnish benefits has 120 days to respond before it takes effect. The Education Department and every other agency that issues an intent to garnish Social Security benefits is required by law to provide the information necessary to file an appeal of any pending garnishment. This includes appropriate phone numbers, addresses, website and email contact information.