Can Two Creditors Garnish Up to 50% of Your Take-Home Pay?

June 1, 2012

iStock_000007320537XSmall.jpgUsually, when a person is sued by a creditor or is served with a garnishment order, a debtor/employee's first recourse is to contact a bankruptcy attorney, requesting that the attorney file a Chapter 7 or Chapter 13 bankruptcy petition on their behalf. While bankruptcy, is no doubt, an efficient and effective means of eliminating a wage-garnishment order, it's not always a feasible option. As I stated in "What Are All My Options For Dealing With my Overwhelming Debt?" blog post, one-size does not fit all. Specifically, there are many reasons a debtor-employee would not wish to file bankruptcy. For example, the employee-debtor has no other debt or is judgment proof. It may surprise many readers to learn that sometimes, challenging a wage-garnishment is better than filing bankruptcy, especially if they are able to challenge a wage-garnishment order--and win; or, challenge a wage-garnishment order and pay but a small fraction of the original wage-garnishment order amount. The next question is this: if a second judgment-creditor attempts to garnish an employee-debtor's wages, is it time for the debtor-employee to file bankruptcy--for fear the second creditor will also seek an additional 25% of the employee-debtor's take home pay, for a total of 50%?

At the Law Office of Linda C. Garrett, a California consumer, MHA HAMP mortgage, bankruptcy and family-law law office, I receive numerous calls from individuals seeking assistance in connection with bankruptcy and wage-garnishment orders. For many, bankruptcy is the solution to stop the garnishment order dead in its tracks; for others, bankruptcy is not an option. For those who have determined bankruptcy is not an option, they have the option of challenging the wage garnishment order. For many employee-debtor's, they achieve success in completely stopping the wage-garnishment order by filing a timely Claim of Exemption Form and Financial Statement; for others, they achieve success by minimizing the amount being garnished from their wages when submitting their Claim of Exemption form.

In my blog post entitled "My Wages Were Just Garnished! Is Filing Bankruptcy The Only Way to Stop My Wages From Being Garnished", I explain ways an employee-debtor can stop a wage-garnishment order ("WGO") from going into effect--especially if they are completely judgment-proof or insolvent. In certain situations, a debtor-employee is unable to stop the wage-garnishment order, if they, in fact, have some discretionary income after payment of standard deductions (e.g. taxes, FICA, etc.) and payment of monthly necessities. For example, an original wage-garnishment order may instruct the employer to deduct 25% of the debtor's take-home pay of $3,000/month, or $750/month (25% of take-home pay of $2,000). If, however, the debtor-employee challenges the WGO by timely preparing and submitting a Claim of Exemption form and Financial Statement, which reflects that, after payment of standard deductions and payment of basic monthly necessities, the actual net disposable income is not $750, but rather, $50--which translates to $12.50/month, not $750/month, the employee-debtor has gain a victory nonetheless. Thus, while the judgment creditor was hoping to garnish $750/month, in reality, the judgment-creditor may only garnish up to $12.50/month--a savings of $737.50 or a savings of 98%!

So, what happens when a second judgment-creditor attempts to submit his wage-garnishment order to the employer for garnishment of the employee-debtor's wages? Does the judgment creditor also take 25% of the take-home pay; or, is it time for the debtor-employee to file bankruptcy? First, I always recommend that a debtor-employee make an informed decision--taking into account all options--to include also taking into account, the pros and cons of their options and that the then weigh them and analyze them against their unique set of facts. As with everything, no one alternative is perfect for everyone--not even bankruptcy. So, for some, bankruptcy is alternative that needs to be undertaken; while for others, it is not--or at least, not the first option to consider.

For our discussion, let's assume the debtor-employee decides to challenge the second wage-garnishment order from a second judgment creditor. As before, the debtor-employee would prepare and submit a timely Claim of Exemption Form and Financial Statement. If done correctly, there is a good chance the judgment-creditor will not challenge the Claim of Exemption form, which would result in the employer taking no further action with regard to the WGO. And, viola, success! This would be the best outcome for the employee-debtor. On the other hand, what would happen if the judgment-creditor objected to the claim of exemption form? First, the employee-debtor would need to prove to the court--as they did before--that their discretionary income is not $750/month, but rather, $50/month. In such a scenario, the two creditors would need to SHARE the $12.50/month, or $6.25/month each.

The point here is that it is important to understand that whether it's 1 or 25 creditors, one or all of the judgment-creditors share the 25% net disposable income, and not entitled to each receiving 25% of the employee-debtor's net disposable income.

Need Help?

If you or someone you know has had a wage-assignment order issued against them, Ms. Garrett, a California-based virtual online attorney, is available to assess their situation to determine all their options, based on the current laws and their unique set of facts. A debtor-employee needs to make a personal decision--based on understanding not only their alternatives, but also, the pros and cons of each of their options--in order to make an informed decision.

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At the Law Office of Linda C. Garrett, Ms. Garrett is able to provide consultations and/or coaching in connection with one or more wage-garnishment orders.