Each year, millions of people find their paycheck being garnished by a creditor. You do not want to be one of them. But if it does, what can you do?
There are many options when it comes to garnishments, but it helps to first understand what a garnishment is and how it works. First of all, a creditor generally cannot simply garnish a paycheck without a court order. But, as with most things, the government is exempt from this rule. Taxes and student loans can garnish your paycheck without a court order.
So remember, if a creditor calls you attempting to collect a debt and they threaten to garnish your paycheck, it is possible, but it will not happen immediately.
To begin, a creditor must sue you in court. Generally you have 30 days to respond to the lawsuit. If no response is filed within the 30 days, then the creditor may file a Default Judgment Order or, if a hearing is held, a Judgment Order. This process can take several weeks to several months. So don’t worry….yet. You have some time to rectify the situation before a judgment is entered. Perhaps an offer to settle the debt is possible. But if you do nothing, the creditor will get the judgment and begin the process of garnishment. But don’t give up yet. After judgment is entered, a creditor must forward this judgment to your local sheriff. The Sheriff will then search for your current employer and serve them a garnishment order.
And you thought all they did was rescue damsels and track down bank robbers. Pushah.
So what do you do now? Well before you quit your job and move to Alaska, understand that this is not the end of the world. Just the end of 25% of your net paycheck. (Which, by the way, is the maximum allowed) But it is not too late to fix it.
First, get a copy of the garnishment order from your payroll department. With this you can double check to see if the lawsuit was correctly served to you when it was first filed. As an example, if the lawsuit was sent to the wrong address or even your prior address, it may be possible to fight the judgment in court. You may want to speak to an attorney about this and what your options are.
If it was served correctly, you may file an “Exemption” with the sheriff’s office. An exemption form is usually attached to the garnishment order. Once the form is filed, a hearing will be scheduled to determine if your income is too low to be garnished. Generally, you must evidence that a garnishment will be too tough a financial burden on you and your family. You must present a budget to the Judge and he will determine what constitutes a financial burden. He may cut the 25% deduction down to 10% or even stop the garnishment. While this may sound like a good option remember, the debt is still there and collectible. And in most cases, Claims of Exemption, are denied by the court.
Perhaps borrowing the money and paying off the judgment would be a good idea. If you take out a loan with only 5% interest, it would be an improvement over the 10% rate that judgments accrue and the monthly payments would be substantially lower than the garnishment amount. However, with a judgment on your credit report, you may find it tough obtaining a loan.
You can attempt to settle with the creditor. But if a judgment has already been granted, the creditor is holding all the cards. You will not have much leverage to negotiate. Their logic is; We already spent the expense of filing the lawsuit and obtaining the judgment. We already have a garnishment in effect which guarantees monthly payments, why should we risk it to settle for a lower amount? If you are considering negotiations with a creditor, it is best done prior to the creditor spending the expense and time pursuing a lawsuit. They may be more willing to work with you then rather than later.
Another option may be bankruptcy. While bankruptcy may sound overwhelming and may feel like the end of the road, it can be a new beginning. If you qualify, you can stop the garnishment in it’s tracks, discharge the debt in full and begin the process of rebuilding your credit immediately. After all, your credit report has already been damaged by the lawsuit and judgment, you may as well just finish it and move on. Bankruptcy should be considered a fresh start and not an end. Talk to an established bankruptcy attorney. Most attorneys offer free consultations, so what have you got to loose? One of the most common reason people file bankruptcy is due to a garnishment.
So consider your options carefully. Garnishments can be very scary, but you always have options.
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