In this guide, we go into detail about garnishments: what they are, how they are initiated, and what you can do to stop a garnishment and avoid losing your assets. As you read this, please keep in mind that this guide is intended to be informational only, that every situation is unique, and that you should always consult with a legal professional with respect to your specific situation.
What is garnishment?
Garnishment is a process by which a creditor (someone who is owed money) can collect a debt. More specifically, garnishment involves collecting the debt from a third party that hold assets belonging to the debtor (the person who owes the debt), as opposed to directly from the debtor.
A couple examples will help clarify this. One of the most common types of garnishment is garnishment of wages. In a wage garnishment, the debtor’s employer is ordered to pay a portion of the debtor’s wages to the creditor. The employer is a third party, because the employer itself does not owe anything to the creditor. However, the employer owes money to the debtor in the form of wages. Instead of paying the debtor, the employer has to give the money to the creditor. In other words, by doing a garnishment, the creditor does not have to wait for the debtor to get the wages, and can instead bypass the debtor and get the money directly from the employer.
Another common type of garnishment is garnishment of bank accounts. In this case, the bank at which the debtor has accounts is ordered to turn over the money in those accounts to the creditor. Again, the bank does not owe anything to the creditor, but it holds money belonging to the debtor. The creditor can bypass the debtor and get the money directly from the bank.
Garnishments are not limited to money, and other personal property can be garnished as well. Non-money garnishments are less common, for two reasons. First, because garnishments can be made only against third persons, the personal property must be in the possession of someone other than the debtor, which is not common. The types of personal property that are most commonly garnished are stocks, bonds, or similar financial instruments. Second, if any property other than money is garnished, it must then be sold by the sheriff before the creditor can be paid. Since this involves additional steps, most creditors prefer to go after money if money is available.
Are there limits on how much can be garnished?
The answer depends on what is being garnished—e.g. wages, bank account, etc. The restrictions on the amount that can be garnished are usually imposed by state law, and in some cases by federal law. The laws that restrict how much can be garnished are called exemption laws. There are numerous exemption laws, which cannot all be covered in this article. The following are some of the most common examples.
For example, when it comes to wages, in Arizona, only 25% of disposable earnings can be garnished. Disposable earnings are wages or salary (including bonuses and commissions) left after deductions required by law, such as taxes. However, the person whose wages are being garnished must be left with at least thirty times the minimum wage per week. This means that people who earn a minimum wage and do not work more than 30 hours per week cannot have their wages garnished at all. It is important to remember, however, that the wage exemption applies only before the wages are paid to you. So, if you receive your wages and put them in your bank account, and a creditor then garnishes your bank account, the 25% limit no longer applies, and the creditor can take all of your wages, subject to the exemption applicable to bank accounts.
Different limits apply to wage garnishments that are made under federal law:
- For federal student loans, the limit is 15%
- For federal taxes, the limit is going to vary depending on the number of dependents you have and the amount of you standard deduction
- For child support and alimony, the federal limit is 50% to 65%, depending on whether you have other dependents and how long you have been delinquent. However, in Arizona, the limit is 50% in all cases
When it comes to bank accounts, under Arizona law, each person is entitled to exempt $300 in one bank account. This means that if your bank account is being garnished, the bank will be required to keep $300 in the bank account and not give it to the creditor. However, if you have multiple accounts being garnished at the same bank, the bank will only have to retain $300 in one bank account.
Another important exemption is for social security and other federal benefits, such as veterans’ benefits and railroad retirement benefits. These benefits are exempt under federal law, and generally cannot be garnished at all (there are some limited exceptions—for example, some veterans’ benefits can be garnished for child support and alimony, and federal benefits may be garnished for federal taxes or student loans). Federal benefits are unique, because they retain their protection even if deposited into a bank account, and still cannot be garnished.
When does a garnishment start?
In most cases, before you can be garnished, a creditor must obtain a judgment against you. This means that the creditor must file a lawsuit in court and win that lawsuit. After that, the creditor has to apply to the court for a garnishment order, called a “writ of garnishment,” and after the court signs this order, the garnishment can proceed.
There are exceptions to this rule. You can be garnished for federal student loans and for federal taxes without a judgment or a court order. State taxing authorities may also be able to garnish you for state taxes without getting a judgment or a court order. However, in Arizona, the state must still sue you in order to garnish for unpaid income taxes. Lastly, your wages can be garnished for delinquent child support or alimony without any additional orders, if a wage assignment order is entered at the time the child support or alimony is first awarded. Under Arizona law, a wage assignment order is required when child support is first awarded, and the court has the option to order wage assignment for alimony.
Will I get notice before a garnishment starts?
You will generally get notice of the garnishment before it starts. The form of the notice may differ depending on the procedure used for the garnishment. For garnishments done through a court order, or “writ of garnishment,” you should get a copy of the “application for writ of garnishment.” This assumes that the creditor has your correct address.
For garnishments done directly, e.g. by the IRS, you will get a letter from the IRS indicating its intent to garnish.
How do I stop a garnishment?
There several ways to stop a garnishment. Here we will focus on the garnishments done through a court order, or “writ of garnishment.”
Option 1: Don’t allow a judgment to be entered against you
The best way to avoid a garnishment is to not allow a judgment to be entered against you in the first place. This means, in simple terms, that you should not ignore lawsuits that are filed against you. If you get any documents that look like they may be from a court, or that say “complaint,” “summons,” or “judgment” on them, it means that there is likely a lawsuit pending against you, and you need to immediately obtain legal advice and determine how you will deal with the lawsuit. Generally, this will involve either fighting the lawsuit (litigating), settling the lawsuit, or dealing with the lawsuit through bankruptcy.
It is especially important to be proactive in dealing with lawsuits because you allow yourself the most time to come up with the best strategy and to make the necessary arrangements to protect your assets. Too often people ignore lawsuits until they get a garnishment order. At that point, there are fewer options available to stop the garnishment, and the timeframes are much shorter as well—you could have less than two weeks to prevent the garnishment from going into effect.
Option 2: Challenge the judgment
If you receive notice of garnishment, and you either did not know that there was a judgment against you, or the judgment was entered against you by default (i.e. without your participation in the lawsuit), then you can stop the garnishment by challenging the judgment. This is done through a “motion to set aside the judgment.” The most common ground for challenging a judgment is if you did not receive proper notice of the lawsuit. The legal requirements for challenging the judgment can get very technical, so it is best to obtain competent legal advice if this is an option you are considering.
Challenging the judgment is particularly useful if you have a good defense to the creditor’s claim against you. Some examples of a good defense are: (1) if there is a legitimate dispute about whether or not you owe what the creditor claims you owe, or (2) if the statute of limitations has expired.
Option 3: Don’t expose assets to garnishment
If there is a judgment against you, and it cannot be set aside, then you should consider how to limit what the garnishment can reach.
For example, if the garnishment is against bank accounts at a specific bank, the effect of the garnishment can be limited by not putting money into those bank accounts. Keep in mind that the bank will withhold funds as soon as it receives the garnishment order, so for this approach to work, the planning for how to protect your money has to begin as soon as you know that there may be a garnishment forthcoming and before the application for garnishment is filed. In other words, this planning should begin as soon as you learn that you are being sued. Instead of putting your savings in a bank account, you could, for example, put it into a retirement account, which would make it exempt and protected from garnishment.
Sometimes it may not be possible to protect your assets from garnishment this way. For example, if the garnishment is against your wages, then as long as you continue to be employed and earn over the exemption amount, then the garnishment will continue.
You should also keep in mind that this approach provides only a temporary solution to prevent an immediate seizure of your money. In the long term, you will still need to resolve the underlying debt to prevent further garnishment efforts in the future, using one of the other options discussed in this article.
Option 4: Reduce the amount that is being garnished (wage garnishments only)
If your wages are being garnished, and you have no way to stop the garnishment, then, at a minimum, you can request that the amount garnished be reduced. You do this by submitting a request for hearing to the court, on a form that you should have received with the garnishment paperwork. You will have to show that a garnishment of 25% of your disposable income will subject you or your family to extreme economic hardship. The court can then reduce the garnishment down to 15% of your disposable income.
Option 5: Settlement
An option that is always available to you to resolve any kind of debt is settlement. Essentially, this means negotiating a voluntary payment schedule with the creditor. Generally, you can settle on the most favorable terms before there is a judgment against you. Once there is a judgment, the creditor will usually not be willing to reduce the debt as much as before judgment. If there is a wage garnishment in effect, the creditor will likely be even less willing to reduce the overall debt. However, even with a garnishment in effect, the creditor will almost always still be willing to settle, unless the creditor is able to garnish the entire debt in a lump sum. There are two reasons for this. First, by settling, the creditor gets paid sooner than it would if it proceeded with the garnishment—a wage garnishment of a large debt can take months or even years to collect, and the creditor cannot be sure that you will stay with your employer for that entire period. Second, the creditor is always exposed to a risk that you will file for bankruptcy to eliminate your debt, in which case the creditor will likely get nothing.
In short, settlement may be a good option if you cannot stop the garnishment by any other means, and if you have the financial ability to make the settlement payments. For more, read Debt Settlement vs Bankruptcy: Pros and Cons.
Option 6: Bankruptcy
Bankruptcy prevents most garnishments from going into effect, and stops garnishments that are already in place. Bankruptcy also allows you to eliminate most types of unsecured debt, including most judgments. It is therefore a very effective tool for avoiding or immediately stopping a garnishment, and for dealing with the underlying debt at the same time. Because of this, bankruptcy can save you significant amounts of money when compared with other options discussed above.
Another unique feature of bankruptcy is that it allows you to get back money that was garnished within three months before the bankruptcy is filed. This is generally accomplished through a Chapter 13 bankruptcy (Read Common Questions About Chapter 13 Bankruptcy). This can be particularly useful if you were unexpectedly garnished a significant lump sum, for example if a substantial amount was taken from your bank account.
However, bankruptcy is a serious legal step, and its benefits and costs should be evaluated carefully with a legal professional. Bankruptcy may be the right option if:
- There is already a judgment against you that cannot be set aside
- You have multiple debts
- Your debts exceed $10,000
- You don’t have the financial resources to settle your debts
- A significant amount was garnished from you within the prior three months
An unexpected garnishment can really throw a wrench into your financial life and interfere with your ability to pay your regular bills and living expenses. Therefore, the best way to deal with a garnishment is to be proactive and to prevent it from occurring before it begins. However, if you are already dealing with a garnishment, then know that there are still options available to stop the garnishment, and potentially to even get back the money that was already garnished.