How far can a creditor go to collect?

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Dear Debt Adviser,
I am having my paychecks garnished from my creditor. I followed the advice of a credit adviser I had signed up with. How do I get the creditor to renegotiate — or is it too late? How far can the creditor go in taking my income?
— Ed

Dear Ed,
You may be a day late and a dollar short. You can certainly contact the attorney or collector who garnished your wages. However, my experience is that after having gone to all the trouble and expense of getting a garnishment order from the court, a creditor will not have an incentive to work with you further. The time for negotiating may well be past.

For my readers not familiar with the collection process, having a paycheck garnished is the last stop in a long journey. In order to garnish wages, a debt usually has to be delinquent to the point of charge-off. This is usually six months past the due date. The debt is then turned over to an attorney, who files a suit in court. You are notified of the hearing, and you should attend and try to come to a resolution. There is a hearing before a judge, which may be followed by a judgment issued for the amount owed. Next, if you still don’t pay, it’s back to court again to get permission to execute a wage garnishment.

Suing you in court obviously costs the creditor money out-of-pocket and no small amount of aggravation. So most creditors will make numerous attempts to collect before resorting to a lawsuit. My guess is that many collection attempts were made in your case, but at the advice of someone or a company, you chose to ignore them.

It sounds to me as though you received some advice from a debt settlement company. Often, debtors are told to stop making payments while they accumulate enough money for a partial settlement offer. What many people don’t realize is that while they are ignoring their creditors and saving the money to settle, the creditors continue to use all the collection avenues available to them. Many times, as you have learned, this includes filing a suit in court to collect what is owed.

Federal and state laws come into play with wage garnishment. The rules include limits on how much can be deducted each pay period. The federal rule is that no more than 25 percent of disposable income. That would be income after deductions including federal, state and local taxes, Social Security, unemployment insurance and state retirement benefits — or whatever amount of disposable earnings that is greater than 30 times the federal minimum hourly wage, or $217.50.

Your employer is required to garnish your wages until the amount included on the garnishment order has been fulfilled. In other words, your paychecks will continue to be garnished by the maximum amount allowed by law until you have paid what you owe.

The good news is that federal law prohibits your employer from firing you solely due to the garnishment. However, be aware that if you have additional garnishments in the future, that protection no longer applies.

I have had people write in to me saying that they mistakenly quit their jobs to avoid garnishment. With our terrible current job market, this is definitely not something I would recommend doing lightly. Remember that a new employer is likely to check your credit during the hiring process. An employee with financial problems is likely to be a less productive one. Furthermore, it is likely your creditor will find you at your new place of employment and you would be facing garnishment again, which could complicate your unhappy life more.

I suggest that you adjust your monthly spending to make your garnishment workable. Or, if you saved a sufficient amount of money to settle the debt, you could try contacting your creditor and offering a settlement on your own. The creditor may or may not go for it. On the one hand, they are guaranteed to receive what is owed through the garnishment, but on the other, they have to wait for the money to come in with each pay period. If you have the money to settle, it wouldn’t hurt to try. But I wouldn’t get your hopes up.

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