If you’re receiving unemployment benefits and a creditor was garnishing your wages before you lost your job, you might wonder, “Can unemployment benefits be garnished?”
The short answer is that in most cases, your unemployment benefits are exempt from garnishment. However, if you owe child or spousal support, taxes, student loan debt or money to the state issuing you the unemployment benefits, a creditor could garnish your benefits.
What is wage garnishment?
Wage garnishment is what happens when your employer follows a court order to withhold a certain percentage of your paycheck to repay a debt you’ve defaulted on. For example, if you don’t pay your tax debt, the IRS has the power to garnish your wages. The money is taken from your paycheck until the debt is paid in full.
How does wage garnishment work?
A creditor uses wage garnishment to collect money on a debt that’s in default. If you don’t respond to a creditor’s attempt to collect a debt, it first sends your debt to a debt collector. The debt collector has a limited amount of time to collect the debt — usually before the debt falls off of your credit report. If you ignore the debt collector and make no attempt to pay, it might start the wage garnishment process to collect what you owe.
Some creditors — ones you owe medical debt or credit card debt to, for example — must file a lawsuit to garnish your wages. If the judge rules in the debt collector’s favor and allows the garnishment, an order is sent to your employer to hold a portion of your check to satisfy the debt. Your employer then sends the withheld amount of money directly to the creditor.
Federal law limits the amount that’s garnished each week to whichever is less: either 25 percent of your disposable income (what’s left after deductions such as taxes and health insurance premiums), or the amount of your disposable income that’s greater than the federal minimum wage times 30.
Unemployment benefits can be garnished for certain debts
It works differently when you owe student loan debt, child support or taxes — the creditor doesn’t have to get a court’s permission to garnish your wages. These types of debt also have different limits for wage garnishment: up to 15 percent of your disposable income for federal student loans, up to 60 percent for child support (and an additional 5 percent if you’re more than 12 weeks behind on payments) and potentially more for federal taxes, depending on your filing status and number of dependents.
In both cases, states can set their own limits that are lower than the federal percentage. Additionally, the Consumer Credit Protection Act (CCPA), protects you from being fired because of a wage garnishment for one debt. But if you have garnishments for more than one debt, the protection disappears.
Are unemployment and other benefits protected from wage garnishment?
Unemployment and other benefits, such as Social Security benefits, Federal Student Aid and disaster assistance, are usually protected from wage garnishment. However, these benefits can be garnished if you owe money for child support, taxes or student loans.
In addition, since garnishment laws vary by state, which benefits are protected depends on where you live. For example, some states created laws to prevent stimulus checks from being garnished.
The bottom line
Unless you have debt for child support, taxes or student loans, a creditor isn’t allowed to garnish your unemployment benefits. To stop a creditor from garnishing your wages when you get a new job, try negotiating with them. Creating a plan to repay debt while you’re unemployed can help you improve your financial future.
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