A wage garnishment is a legal procedure where a certain portion of a person’s earnings are withheld temporarily so that a debt can be paid off. This typically only takes effect after a court order, and once a borrower has defaulted on their loans. An employee can choose to have their wages garnished on their own so that they may pay off a debt, but federal law does not classify this situation as a typical wage garnishment, so to speak.
A wage garnishment still must meet ethical standards. The following regulations have been set in place by the government in order to protect employees:
- Title III of the Consumer Credit Protection prevents the employee’s wages from being garnished beyond a certain percentage, and also prevents the employer from firing an employee for debt-related purposes.
- Title III protects everyone who receives wages, salaries, commissions, bonuses, or other forms of income. Tips are generally not included in the garnishment.
- The Consumer Credit Protection Act protects employees from being fired for any one Wage Garnishment, but does not protect them from termination if there are two or more debt being garnished.
Wage Garnishment Restrictions
The portion of a person’s income that is restricted and withheld is the disposable portion of their income, and not their gross income. Legal deductions such as taxes are also excluded. Types of deductions that are not included are listed below:
- Federal, state, and local taxes
- Unemployment insurance
- Social security
- Retirement systems required by law
On the other hand, the following deductions may not be legal deductions and can, in some situations, be subject to wage garnishment:
- Union dues
- Health, life, and other insurance policies
- Donations to charity organizations
- Investments for retirement that are not legally mandatory
How is Wage Garnishment Calculated?
The law establishes the maximum amount that can legally be garnished in any work week or other period of pay, regardless of the number of garnishment orders received by the employer. For ordinary garnishments (i.e., those not for support, bankruptcy, or any state or federal tax), the weekly amount may not exceed the lesser of two figures: 25% of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage (currently $7.25 an hour).
The CCPA has set a maximum amount in place so that someone can be subject to wage garnishment regardless of the amount of garnishment orders on any one specific person. This calculation is based upon the federal minimum wage, which is currently $7.25 per hour.
According to current legal standards, the weekly amount cannot exceed the lesser of two calculations. The employee can be subject to a 25% wage garnishment, or subject to their income that is over 30 times the Federal Minimum Wage.
What this means is any wages over $217.50 can be subject to wage garnishment of a maximum of 25%. The total has been calculated this way:
$7.25 x 30 = $217.50
A typical pay period is two weeks. If this is the case for this particular hypothetical borrower’s place of employment, then it would be 60 times the federal minimum wage. The wage garnishment law specifies that the restrictions on garnishment do not apply to certain bankruptcy court orders, or to debts due for federal or state taxes.
The Debt Collection Improvement Act allows contracted government collection agencies to collect up to 15% of disposable income. Similarly, the Higher Education Act allows collection agencies in contract with the Department of Education to collect up to 10% of disposable income.
Social Security Garnishment
In some cases, social security benefits can and will be garnished to repay federal student loans. Section 129 (Benefits Not Transferable) in the Social Security Administration Handbook clearly lays out what is allowed regarding garnishment in paragraph 129.2. The handbook reads:
“If you have any unpaid federal taxes, the Internal Revenue Service can levy your Social Security benefits. Your benefits can also be garnished in order to collect unpaid child support and or alimony. Your benefits may also be garnished in response to Court Ordered Victims Restitution. SSI payments cannot be levied or garnished. Treasury’s Financial Management Service can also offset, or reduce, your Social Security benefits to collect delinquent debts owed to other Federal agencies, such as student loans owed to the Department of Education.”
This doesn’t mean that a large, significant amount of a person’s social security check can be garnished for a student loan in default. All, half, or even a quarter cannot be garnished, and since this is considered a non-tax debt, the first $750 in monthly benefits cannot be withheld by collection agencies.
For example, a monthly check of $850 that is being garnished at 15% for a total of $127.50, leaves the person receiving the check a total of only $722.50 in monthly benefits. Since this exceeds the $750 limitation, the total amount that can be garnished is only $100.00.
It is important to keep in mind that this garnishment does not apply to lump sum death benefits or social security benefits paid to children.
Time does not prevent the potential garnishment of social security benefits for a federal student loan, either. Back in 2005, the Supreme Court (Lockhart v. U.S.) decided that there is no statute of limitations to observe when collecting a student loan debt. As a result of this decision, the Supreme Court decided that the Higher Education Opportunity Act overpowered both the Social Security Act and the Debt Collection Act. The education department can now collect debts owed over ten years ago.
However, this applies only to federal student loans. If a person has student loans from a bank or other private lending institution, that organization is not legally permitted to touch any social security benefits. This is also true for state agencies. If a loan collector for such an institution threatens you with potentially withholding your social security benefits, they should be reported immediately. Lying in order to collect a debt is immoral and illegal.
It is also illegal to apply garnishments to social security benefits without first informing the person, who then has a total of 120 days to respond before it takes effect with or without their response. Any agency that issues the intent to garnish these benefits is required by law to provide the information necessary to file an appeal of any pending garnishment. This includes appropriate phone numbers, addresses, website, and email contact information.