Dear Debt Adviser,
I lost my job and am collecting unemployment benefits. Can a creditor garnish my unemployment check? I’ve been looking for new employment, but as you know, so is everyone else. Thanks.
— Connie
Dear Connie,
I know that being unemployed in the best of times stinks. But being unemployed in the midst of a bad recession makes it seem more like a depression. I’ve been there more than once myself and can only say that this too shall pass, and you will be fine afterward. I don’t know how far down the collection chute you are, but let me offer you and my other readers a short primer.
For most garden variety debts like credit cards or personal loans, once you are late, calls and letters escalate during the next 90 days. From 90 to 180 days, collection activity steadily increases in frequency and volume. After 180 days, the lawyers tend to come in. This can result in a summons that eventually can end in a garnishment. The important thing to know here is that a garnishment takes time and is usually not a surprise. However, secured debts for cars and homes follow a different and shorter track.
From a job search perspective, a bad credit report can be a nonstarter for many openings. Credit reports are routinely checked by prospective employers before they make an offer. Delinquencies and judgments can mean a distracted employee who will be less productive. So, it’s important to have your credit look as good as you can when you are out job hunting.
Some good (or maybe less bad) news is that in most circumstances, unemployment benefits are exempt from garnishment. Generally, only if the order for garnishment was for child or spousal support, or if you owe the state that is issuing the unemployment benefits, would they qualify for garnishment.
However, if you were granted a severance from your last job, those monies are considered wages and could be garnished. In addition, if you are married and live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, possibly Alaska and the 51st state Puerto Rico) and think you don’t have enough problems, your spouse’s wages could be garnished for your debt. I don’t even want to think about that scenario!
Now before you count yourself lucky because you don’t live in a community property state, if you have a joint bank account with your spouse, the creditor may be able to place a levy on the account even if some of the money in the account is from your spouse’s income. To protect your unemployment benefits, you might consider having them deposited in a bank account where those funds are the only ones deposited into the account. That way you may be able to get them back if they are taken and are the only source of funds for the account.
A creditor cannot just decide to garnish your wages and then do it. The only way a creditor can garnish is to obtain an order through a court. To gain the order from the court, the creditor must provide you with notice that you are being sued for the debt owed and give you notice of the court date. I strongly recommend that you show up in court and take professional legal representation with you if at all possible. If you are not there, the court is more than likely to grant the creditor a judgment to garnish.
Finally, if you had a wage garnishment already in effect before you lost your job, then the creditor will need to go back to get a different order from the court for your new employer. So, while you may have some relief from the garnishment until you find another job, the creditor will eventually learn who your new employer is and get a new garnishment order.
I wish you the best of luck in your search and hope that you write back to me once you have a new position, asking for tips on how you can begin to save some of your new money for an emergency fund. It will help you the next time that you find yourself out of work and make it less traumatic.
Good luck!
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