How Wage Garnishmen Work in Practice
Can your credit lender actually garnish wages if you stop making monthly payments? It depends on the state laws where you live.
Most states have a provision for garnishment of wages as a solution for lenders trying to collect debt owed.
Only a court judgment will permit your lender to garnish wages. If you have cash in bank accounts, the court may direct that money to be seized to pay your debt. If you have no visible assets that can be seized for debt repayment, wage garnishment is the next step.
Who Owns Your Debt?
Credit card companies garnish wages as a last resort of debt collection. It is expensive to take debtors to court and this is not the path most lenders want to choose.
In the end, it is not the credit card companies who garnish wages. It is the secondary debt market that now owns your credit card debt.
When you stop making payments, your credit card account is considered to be in default. The collection division of the lender will try to collect the debt with frequent phone calls.
You may be able to negotiate a settlement or arrive at other solutions that allow you to pay the debt you owe under better payment terms.
If you refuse to respond to demands for payment and do not attempt to find a resolution by talking to the lender, your debt may be deemed uncollectible. In this case, the lending bank may decide to sell your debt to a collection company.
That company will begin collection efforts (this is where the really obnoxious phone calls begin). The original lender may sell the debt for pennies on the dollar or may sell an interest in the debt so the lender collects a percentage of any amounts recovered by the collection agency.
The Collection Process
If you recently stopped paying on your credit cards, the calls you are receiving are from your lending bank.
Some financials are so large they have their own massive legal departments and may choose to do their own collections. Most banks follow a collection cycle instead.
When your account first becomes delinquent it is moved to the collections department of the lender.
If collection efforts are unsuccessful or if you refuse to reply to the lender's calls and mail requests, the debt may be charged off.
The older the debt is, the more times it has changed hands. If you are threatened with legal action, chances are you are not dealing with the bank who issued your credit card. Once your account has been charged off, the debt is sold to a third party collection company.
The attempts to collect the debt become more aggressive and can continue for weeks or months. If the collection company fails to collect, the debt may be sold (again, at a discount) to a debt buyer.
The balance of debt on your credit cards may be "owned" as a debt by 5-7 different companies and/or individuals and each company or individual will make efforts to convince you to pay your debt.
Each time the debt is sold, it is sold for less and many consumer debts do sell for only a few pennies each dollar owed.
Courts May Allow Companies to Garnish Wages
A garnishment can only occur through an order of the court. The lender or the collection company must sue you and file the papers proving you owe money.
You have a court date and the opportunity to appear and argue the debt or to settle the debt without legal action.
Garnishment is a big deal for consumers. It alerts their employer to financial problems and because it is a last resort, it is an embarrassing event for the debtor.
Most consumers realize that credit card companies garnish wages only when all other efforts to collect the debt have failed.
Garnishment can also result in loss of employment. There are businesses where the personal financial dealings are important to the job.
This may be a company where credit cards are provided to traveling salespeople. It may be a job where the employee has access to cash or must be bonded to work in his position.
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Yes, credit lenders are allowed to garnish wages if a court action is decided in favor of the lender, your wages may be garnished to repay your debt. Each state has different laws government garnishment of wages.
If you are receiving income from government programs or retirement funds, that income is excluded as garnishment is focused on workers who are producing a regular paycheck.
The amount that can be taken from each check is also regulated by states but is often a significant portion of the worker's weekly pay.
Stay around and read our other useful sections, especiall the one about about "debt relief".