In a move that may slightly help people facing wage garnishment, California recently enacted a law to raise the exempt amount of weekly pay from wage garnishment to $320 per week, up from the previous $217.50 per week. The $100 increase is certainly needed, as $217.50 per week is below both the federal and state poverty line even for just a single person with no children. Even with the increase, people who are currently having their wages garnished may still struggle to make ends meet, particularly if they have dependents or have special circumstances such as medical issues.
Wage garnishment is a debt collection enforcement action whereby a creditor directly receives a specified amount per paycheck of the debtor. In addition, a certain portion of assets from third parties can be levied (taken), such as personal bank accounts. Generally, a creditor must file a lawsuit in order to obtain a garnishment, but some entities need not file a lawsuit. The IRS may garnish wages for unpaid tax and interest, for example, without needing to obtain court approval.
Maximum Garnishment Amounts
Entire paychecks cannot be garnished. California law limits the maximum amount of wage garnishment to the lower of the following options:
- Any amount of the debtor’s income that exceeds 30 times the minimum wage, which in California for 2012 is $8 per hour
- One-quarter of a debtor’s disposable income, which is income left over after mandatory deductions are taken out of the paycheck
Some types of credit are exempt from the 25 percent limit of disposable income, including child support payments and back taxes. This means child support payments and tax debt can be devastating to those facing wage garnishment.
Claim of Exemption for Wage Garnishment
Certain types of income are exempt from wage garnishment, as well. For example, a creditor cannot garnish Social Security benefits or disability insurance. Other exemptions exist, but a debtor must file a Claim of Exemption form. California law specifies which income is exempt from levying, both with and without needing to file a claim. The full list of exemptions is extensive and nuanced and beyond the scope of this article.
Bankruptcy May Be an Option
A sure way to end wage garnishment immediately is to file Chapter 7 or Chapter 13 bankruptcy. Once filed, a bankruptcy immediately halts all creditor actions, including wage garnishment.
In Chapter 7 bankruptcy, the assets of the bankruptcy filer are liquidated (sold) and used to pay off creditors. Chapter 13 bankruptcy, on the other hand, involves the filer consolidating debt into a manageable payment plan lasting three-to-five years. In Chapter 7, most debt remaining after liquidation is forgiven. Some debt in Chapter 13 bankruptcy may also be reduced or eliminated, and Chapter 13 has the advantage of allowing the filer to keep some assets, such as a home and car.
Need Wage Garnishment Help?
Determining what property is exempt, whether to file a Claim of Exemption, or whether to file for bankruptcy is dependent upon individual circumstances. Those needing help with wage garnishment should discuss their situation with an experienced bankruptcy attorney.
