If you can’t pay your credit card bills, the worst thing you can do is to stop making payments completely. Why? Because if you ignore your debt obligations, your credit card issuer is likely to send your account to a collections department — and if you don’t respond to your debt collectors, you could get sued and your wages could be garnished to pay off your debt.
There are many ways to avoid wage garnishment. If you can make the minimum payments on your credit cards every month, for example, you might not make much progress on your debt but your account will remain in good standing. If you are unable to make those minimum payments, you can contact your credit card issuer and request to be considered for a hardship program.
What you don’t want to do is try to get out of your debt by not paying it. If you ignore your credit card payments for too long, the courts could garnish your wages by ordering your employer to give a portion of each paycheck to your creditors until your debts are paid. Creditors and debt collectors may also use non-wage garnishment to withdraw money directly from your bank account, making it more difficult for you to cover day-to-day expenses.
Here’s what you need to know about wage garnishment, including how to avoid it, how to protect yourself and whether your government stimulus check can be garnished to pay for old debts.
What is wage garnishment?
Wage garnishment is one of the final steps in the debt collection process. If you cannot pay your debts, your creditor will begin the debt collection process by sending you reminders about missed payments. You might also get charged late fees or see your interest rate increase — and if you continue to miss payments, your credit score is likely to drop.
If your debt continues to go unpaid, your creditor will send your debt to a collections agency. Debt collectors have a limited amount of time in which to collect on an old debt, so they’ll begin by calling you (often repeatedly) and may decide to sue you for non-payment. If the lawsuit proceeds and the court rules in the debt collector’s favor, your wages can be garnished in order to ensure the debts get paid.
With wage garnishment, a certain amount of every paycheck goes directly to the debt collector until your debt is paid in full. Your employer’s payroll department will have to deduct the money from your paycheck, which means your employer will be aware that you haven’t paid off your debts. According to the Consumer Credit Protection Act, your employer cannot fire you if your wages are being garnished for a single debt — but that protection disappears if your wages are being garnished for multiple debts.
Can my wages be garnished for credit card debts?
Yes, your wages can be garnished over an unpaid credit card debt — especially if the debt ends up going to collections. Although many people associate wage garnishment with unpaid child support, defaulted student loans or back taxes, courts can also order your wages to be garnished over an outstanding credit card debt. Wages can even be garnished over a joint credit card debt, such as a credit card shared with a partner or spouse.
What are the wage garnishment limitations?
Federal law limits the amount of money that can be garnished from each paycheck. For ordinary garnishments, creditors may not take more than either 25% of your income (after taxes and qualifying deductions have been removed) or the amount by which your income is greater than 30 times the federal minimum wage (currently $7.25/hr), whichever is lower. In some cases, your wages may be too low to be legally garnished.
“… if the pay period is weekly and disposable earnings are $217.50 ($7.25 × 30) or less, there can be no garnishment. If disposable earnings are more than $217.50 but less than $290 ($7.25 × 40), the amount above $217.50 can be garnished. If disposable earnings are $290 or more, a maximum of 25% can be garnished. When pay periods cover more than one week, multiples of the weekly restrictions must be used to calculate the maximum amounts that may be garnished,” as stated on the U.S. Department of Labor’s website.
Some states have wage garnishment limitations that are even more strict than the federal limits, meaning that creditors are allowed to garnish even less of each paycheck. You can review wage garnishment limitations in your state.
If you file for bankruptcy, creditors and debt collectors may not garnish your wages — though you may have to notify your creditors, your employer and the legal system in order to stop wage garnishment after bankruptcy.
How to protect yourself from wage garnishment
If you’re behind on your credit card payments and your debt has already been sent to collections, there are steps you can take to protect yourself from wage garnishment. First, get in touch with the debt collections company to discuss debt forgiveness options. The collections agency might reduce your total debt if you’re able to make a lump sum payment on the remaining balance, for example.
If your debt is at the point where collections agencies are sending you notices about a potential lawsuit, do not ignore these notices or letters. Contact the debt collections company as soon as you get your first notice to see if you can work out an agreement instead of going to court.
If you end up getting sued over old debt, don’t ignore the summons. If you fail to appear in court, your debt collector will automatically win the suit — so show up, dress professionally and be prepared to defend yourself. Remember that each state has a statute of limitations on debt, and your debt collector may be suing you over a debt that they no longer have the right to collect. You may even want to talk to a lawyer about your rights and options; lawyers aren’t free, but they can be more affordable than a wage garnishment.
Can credit card companies take my stimulus check?
Your stimulus check does not count as wages, but that doesn’t mean it can’t be garnished. Lenders and collection agencies can also use non-wage garnishment or “bank account garnishment” to claim funds on behalf of an outstanding debt. This means that your stimulus check could potentially be taken from you to fulfill a garnishment ruling or to cover a debt like an overdrawn bank account.
However, some states are passing laws to prevent credit card companies and debt collectors from garnishing stimulus checks. Likewise, some banks and credit card issuers have stated that they will not garnish stimulus money.
The National Consumer Law Center gives guidance on how to protect your stimulus check from garnishment:
- Avoid direct deposit into your account by requesting a paper check
- If direct deposit is unavoidable, quickly withdraw funds from your account
- Seeking an emergency stay of any garnishment order; or
- Asserting exemptions under state law if an account containing the stimulus check has already been garnished
What to do if you can’t pay your credit card bills
If you’re unable to pay your credit card bills, your first step should be to contact your credit card issuer and see if you can negotiate a lower monthly payment or a lower interest rate. You might also want to ask about credit card forbearance options, which allow you to put off making payments for a few months without any damage to your credit score.
If you are having difficulty paying your credit card bills due to the financial effects of the coronavirus pandemic, be aware that many credit card issuers are offering special assistance programs to help individuals and families affected by COVID-19. If you have been unemployed, furloughed or have seen your income reduced, contact your credit card company and request assistance.
If you need additional help, consider contacting a reputable nonprofit credit counseling service. These organizations work with you to make a financial plan that allows you to keep up with your debt payments, and they can also provide insight into debt relief options like debt consolidation.
To learn more about how to manage and pay off credit card debt, visit Bankrate’s credit card debt resource site.