DEFINITION of 'Garnishment'

Garnishment refers to a legal process that instructs a third party to deduct payments directly from a debtor’s wage or bank account. Typically, the third party is the debtor’s employer and is known as the garnishee. Federal law prohibits employers from firing a worker to avoid processing a garnishment payment. Garnishments are used for debts such as unpaid taxes, monetary fines, child support payments and defaulted student loans. 

BREAKING DOWN 'Garnishment'

For a debtor’s wage to be garnished, a creditor must typically obtain a court order by saying that the debtor owes money and they have defaulted on payment.  If the debt is an Internal Revenue Service (IRS) levy, a court order is not required. For example, if John Smith owes $10,000 in unpaid taxes that have been overdue, the IRS can resort to garnishment of his wages. The IRS would then direct Smith's employer to remit a portion of his salary for a certain amount of time until Smith has paid off his taxes in full. Garnishments can have a negative impact on an individual’s credit rating.

Wage Garnishment

The Consumer Credit Protection Act stipulates the amount of income that can be garnished from an individual's wage. The garnishment amount is the lower of the following:

  • Twenty-five percent of weekly disposable income if the individual’s disposable income is greater than $290.

  • Any amount greater than 30 times the weekly minimum wage, which is $217.50 ($7.25 x 30).

Individuals who earn disposable income under $217.50 per week do not receive any wage garnishment. Individuals who receive a disposable income of between $217.50 and $290 per week can have any amount above $217.50 garnished. For weekly disposable earnings above $290, a maximum of 25% can be garnished. Disposable income is defined as gross income minus legally required deductions, such as federal, state and local taxes and social security deductions.

Wage Garnishment Exceptions

Garnishment limits set by the Consumer Credit Protection Act do not apply to unpaid tax debt, child support, bankruptcy orders, student loans or voluntary wage allocations. Federal agencies can garnish up to 15% of an individual’s wage, while the Department of Education can garnish up to 10%. Sixty percent of wages can be garnished for child support payments if an individual has no other dependants to support. Federal and state garnishment limits may differ, in which case the lower garnishment limit applies. If an individual faces financial hardship due to wage garnishment, they may be eligible to file a claim to reduce the garnishment amount. (To learn about garnishment and your IRA, see: Can Creditors Garnish my IRA?)

  1. Charging Order

  2. Debtor

  3. Minimum Wage

    The minimum wage is a legally mandated price floor on hourly ...
  4. Automatic Stay

    A legal provision that temporarily prevents creditors from pursuing ...
  5. Wage Assignment

  6. Default

    Default is the failure to promptly pay interest or principal ...
Related Articles
  1. Insights

    3 Reasons Banks Can Freeze Your Account

    Learn about the reasons why a bank account can be frozen. Discover if it is legal for creditors to freeze your account and withdraw money.
  2. Insights

    Good News: Long-Awaited Wage Growth is Finally Happening

    American wages reached record levels last year--and not just for the wealthy.
  3. Personal Finance

    How Minimum Wage Impacts Unemployment

  4. Insights


  5. Insights

    Why Minimum Wage Is a Kingmaking Issue in Elections

  6. Personal Finance


  7. Investing

    7 Countries Raising The Minimum Wage

  8. Investing

    How Rising Wages Will Fire Up U.S. Stocks

    The September 2017 jobs report showed a 3% spike in wages, which is good news for the stock market.
  9. Insights

    5 Developed Countries without Minimum Wages

  10. Insights

    What Are the Pros and Cons of Raising the Minimum Wage?

    With the debate on wages continuing in Congress and in the public arena, here are some of the major pros and cons of raising the minimum wage.
  1. Can the IRS garnish your tax refund?

    Understand whether the IRS can legally garnish a person's tax returns. Learn the priority for garnishing wages for state ... Read Answer >>
  2. Student Loan Creditors Can Garnish Your Money

    The U.S. government and private lenders can garnish your bank account to recover unpaid student loans in multiple ways Read Answer >>
  3. Can the IRS garnish your wages?

    Discover how the IRS can legally take most of your paycheck to satisfy any debt from back taxes, leaving you with just enough ... Read Answer >>
  4. Can a creditor sue me for a delinquent account?

Trading Center