WAGE GARNISHMENT A Guide to Understanding Court-Ordered Wage Garnishment and Your Options Public Counsel 610 S. Ardmore Avenue Los Angeles, CA 90005 (213) 385-2977 www.publiccounsel.org 2011
Table of Contents What Is Wage Garnishment?... 2 What Can be Garnished?... 2 Can Public Benefits be Garnished?... 2 Are There Limits to Garnishing?... 3 Owing Support vs. Garnishment... 3 How Are Multiple Debts Paid?... 4 Voluntary vs. Court-Ordered Support... 4 Can I Challenge the Order of Garnishment?... 5 Necessaries of Life Exemption... 5 How Do I Ask for an Exemption?... 5 Alternatives... 6 Appendix A: EJ155 7 Appendix B: EJ-160... 9 Appendix C: WR-006... 10 Appendix D: WR-007... 11 This pamphlet discusses Wage Garnishment only. If there is a money judgment against you, it is possible that a court may order that your property, including money in your bank accounts, is taken to pay the debt. If you believe you have a court judgment against you, contact an attorney for advice. 1 Page 2011 www.publiccounsel.org
What Is Wage Garnishment? My Wages Are Being Garnished... Can They Do That? Wage garnishment is a legal process requiring an employer to withhold a portion of a person's earned wages to repay a judgment creditor. A judgment creditor is someone who won a lawsuit against the employee. The employee is known as a judgment debtor. What Can be Garnished? The judgment debtor's earnings can be garnished, including: wages salary commissions bonuses periodic pension and retirement benefit payments. 1 Money received through gifts, child support, life insurance proceeds 2 or income tax refunds 3 is not earnings and cannot be garnished. The law is unclear whether money earned by independent contractors is considered earnings. 4 When calculating the amount of money subject to garnishment, only disposable earnings are considered. 5 Disposable earnings is the part of a person's income after deductions required by law. Deductions required by law include wages withheld for taxes, social security and unemployment insurance but do not include garnishments. Can Public Benefits be Garnished? Public benefits are generally not considered earnings, and therefore, are not subject to garnishment. 6 However, there are several exceptions to this rule. 1) Federal public benefits may be garnished to pay spousal or child support. 7 2) Under California law, up to 25% of state unemployment compensation benefits and state disability benefits may also be withheld to pay spousal or child support obligations. 8 Deductions from state unemployment and disability benefits for support are automatic if requested by the local child support agency. 9 1 wages, salary, commission, bonus or otherwise and includes periodic payments pursuant to a pension or a retirement program 15 USC 1672(a). 2 Life insurance proceeds: John Hancock Mut. Life Ins. Co. v. First Nat'l Bank, 393 F. Supp. 204 (1974 E.D. Tenn.) 3 Income tax refunds: Usery v. First Nat'l Bank, 586 F. 2d 107, 110 (1978). 4 CCP 706.01; Moses v. DeVersecy, 157 Cal. App. 3D 1071; but see In re Jones (2005, BC SD Ohio) 318 BR 841. 5 The term disposable earnings means any part of the earnings of any individual remaining after the deduction from those earnings of any amount required to be withheld by law 15 USC 1672(b) 6 Note: it still may be possible for money to be recovered from bank accounts containing Federal public benefits (though there are proposals currently being considered that would further limit creditors ability to reach such funds). 7 Federal public benefits garnished for support: 42 USC 659 and 666. 8 State unemployment for support: Cal Fam Code 17518. 9 Automatic state deductions for support: Ibid. 2 Page 2011 www.publiccounsel.org
Note: The 25% limit may be reduced either by making an agreement with the local child support agency in writing or through a court order. 10 3) Other state benefits, such as welfare, may not be garnished for support. However, state benefits may be withheld if the state previously overpaid a recipient, 11 or if the person receiving the benefit owes money to a state agency 12 (e.g. for taxes). Are There Limits to Garnishing? Federal law limits how much of a person's earnings can be garnished. 13 Remember, only disposable earnings (amount of earnings after deductions for taxes) may be garnished. Generally, garnishment orders are limited to the lesser of: 25% of a person's disposable earning OR The amount by which a person's disposable earnings for a week exceed thirty times the Federal minimum wage. Based on the current minimum wage, if a person s disposable earnings are $217.50 or less in a week, all their earnings are exempt from garnishment. Note: These limits do not apply to child or spousal support garnishments, Chapter 13 bankruptcy debtors or to any state or federal tax debts. 14 If the garnishment is for child or spousal support, up to 50-65% of disposable earnings can be garnished, even if the debtor earns less than $217 per week. 15 Specifically, a person's disposable earnings can be garnished for child or spousal support up to a maximum of: 50%, if the person is also supporting another spouse or dependent child 55%, if the person is also supporting another spouse or dependent child AND the person owes arrears (is overdue) on support payments 60%, if the person is not supporting another spouse or dependent child 65%, if the person is not supporting another spouse or dependent child AND the person owes arrears (is overdue) on support payments Note: Arrears will only raise the garnishment limits where the arrears are owed for 12 weeks or more. Owing Support vs. Garnishment Owing support is different than support being garnished from a person's earning. The law limits the amount of money that can be garnished from a person's income, but the law does not limit how much a person may owe. A support order can require payment of an amount more or less than the maximum (50-65%) that can be garnished. If more support is owed than can be garnished, there will remain an amount owed even if there is a garnishment order, and arrears will grow. 10 Ability to reduce state deductions by agreement: Ibid. 11 Overpayment: CCP 706.101. 12 Withholding state benefits to pay state debt: Cal. Govt Code 12419.5 13 15 USC 1673(a). 14 Ibid. 15 15 USC 1673(b). 3 Page 2011 www.publiccounsel.org
Example: When Carl and Mary got divorced, the court ordered Carl to pay Mary $750 per week in spousal and child support payments. (This means Carl owes $750 for support). Carl earns $1000 per week and does not support any other spouse or dependent children. When Carl refuses to make support payments, Mary gets an order of garnishment from the court. Even though Carl owes $750 for support, the court can only order up to 60% of his earnings ($600) be garnished. After $600 of Carl's earnings are garnished to pay Mary, Carl will still owe the remaining $150 per week to Mary. The unpaid $150 becomes arrears. Once the arrears accumulate for 12 weeks, Mary can have her court ordered garnishment increased to 65% of Carl's earnings. How Are Multiple Debts Paid? Where more than one garnishment order is issued against a person's earnings, the order with the highest priority will be paid first. 16 Support orders have priority over all other orders, and current support orders have priority over delinquent support order. 17 Support orders include both spousal and child support. However, if there are multiple court orders for garnishment on one person's earnings, the total amount garnished cannot exceed the garnishment limits. If one of the garnishment orders is for support (or support arrears), the support order will be paid first. If the amount of support garnished is greater than 25% of the debtor's disposable earnings, other garnishment orders will not be able to be enforced. 18 However, if the support order is satisfied prior to the termination of the other garnishment order, that garnishment order will apply as soon as the support garnishment expires. Voluntary vs. Court-Ordered Support Support paid voluntarily is treated differently from state or court-ordered payments. All support payments, whether ordered or voluntary, are included as part of a person's disposable earnings. 19 Remember, only a portion of a debtor's disposable earnings can be garnished to repay judgment creditors. Although voluntarily payments do not generally count towards garnishment limits, ordered payments do. 20 Therefore, no matter how much a person gives to repay a debt, if the payments are voluntary, his income may still be garnished under a court order up to the legal limits. If an employee agrees with his employer to have amounts automatically deducted from his wages to pay support, payments are voluntary. 21 Payments are considered voluntary even if paid to fulfill a courtordered divorce judgment. 22 Support payments are only considered garnishments when the person paying them has no control over the fact that the money is withheld because the court order or a state agency requires the employer to withhold money. Example: John earns $500 per week after deductions for taxes and social security. John's ex-wife has a court order requiring John to pay $300 per week in child support. John asks his boss to take $300 out of 16 Priority of garnishment orders: CCP 706.023. 17 Support orders have priority: CCP 706.030(c) and 706.031(b). 18 Marshall v. District Court 41b Judicial District, 444 F. Supp. 1110 (E. Dist. Mich. 1978). 19 Ibid. see also First Nat'l Bank v. Hasty, 415 F. Supp. 170 (1976, ED Mich.). 20 Ibid. 21 Bache Halsey Stuart Shields, Inc. v. Killop, 589 F. Supp. 390 (E. Dist. Mich. 1984); Western v. Hodgeson, 494 F. 2d 379, 382 (4 th Cir. 1974); but see Voss Prods., Inc. v. Carlton, 147 F. Supp. 2d 892 (E.D. Tenn. 2001). 22 Carpenter v. Mumaw, 230 Wis. 2D 384 (1999); Frankel v. Frankel, 886 A. 2d 136, 155-56 (2005). 4 Page 2011 www.publiccounsel.org
his pay check every week and send it to John's ex-wife. Later, a creditor gets a judgment against John for $1000. If the creditor also gets a garnishment order, the creditor will be able to take up to 25% of John's $500 per week earning ($125) until the judgment is paid in full. It does not matter that $300 is deducted for child support because John is paying that money voluntarily. Therefore, the $300 will not count towards the creditor's garnishment limit. Note: Court ordered garnishment will affect your credit rating and will remain on your credit report for 7 years. On the other hand, voluntarily paying your judgment debts will not negatively affect your credit rating. Therefore, you should consider your options carefully. Can I Challenge the Order of Garnishment? A person may be able to apply to the court to pay less than the garnishment limits if they can prove that they need the money being garnished to support themselves or their family - to pay for the necessaries of life. 23 The debtor must apply to the court to get this exception. Necessaries of Life Exemption The necessaries of life include things like food, shelter, medical care and clothing. A person can claim the necessaries of life exemption if: there was no prior hearing about the issue OR there has been a significant change in the person's financial circumstances since the last hearing. Note: The exemption for the necessaries of life is not automatic. A debtor must apply for the exemption when notified of the garnishment. The necessaries of life exemption does not apply if the debt being garnished was owed to pay: for the necessaries of life (e.g. if the debt is owed for food, clothing, medical bills or housing) your former employee's wages OR spousal or child support obligations. 24 In other words, if you owe the debt to pay for the necessaries of life, you cannot use the necessaries of life exception. Example: If your wages are being garnished to pay a former landlord who evicted you, you cannot get an exemption based on needing your earnings to pay for the necessaries of life because the rent you owed to the landlord was itself a necessaries of life expense. How Do I Ask for an Exemption? Once you receive a Notice of Garnishment, you can request an exemption. To do so, follow these steps: 1. Fill out two forms: Claim of Exemption (WR-006) and Financial Statement (WR-007). The forms are attached at Appendix C. You can get a copy of these court forms from the levying officer or online at www.courtinfo.ca.gov/cgi-bin/forms.cgi. 23 CCP 706.122(c) and 706.051(b). 24 CCP 706.051(c). 5 Page 2011 www.publiccounsel.org
2. The Financial Statement is your evidence, so the more details you can provide to support your claim, the better your argument. You can attach additional pages if you need more space to explain your expenses. 3. You can make an offer to the judgment creditor for an amount that you are able and willing to pay. If the creditor accepts your offer, this will be the amount deducted from your pay check. 4. Sign both forms and make 3 copies of each. 5. Mail the 2 copies to the levying officer (the levying officer's name and address is in a box on the top right corner of the Earnings Withholding Order you received). Keep one copy for yourself in case you have to go to court. Alternatives A person can avoid garnishment if they make alternative repayment arrangements directly with their creditors. Government creditors, such as the IRS and the Franchise Tax Board, are often willing to discuss repayment plans to accommodate hardships. Private creditors may be less willing to have these discussions, especially after the hassle of filing a claim, obtaining judgment, applying for a garnishment order and serving employers. It may be best to attempt to negotiate with creditors before legal action is taken. Remember, also, that wage garnishment will affect your credit rating. A garnishment order will remain on your credit report for seven years. On the other hand, voluntarily paying a debt will not negatively impact your credit rating. However, since voluntary payments are not considered garnishments, money repaid voluntarily will not count towards the garnishment limit. You should consider your options carefully before deciding between paying a judgment debt voluntarily and waiting until your creditors pursue a garnishment order. 6 Page 2011 www.publiccounsel.org
Appendix A: EJ-155 7 Page 2011 www.publiccounsel.org
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Appendix B: EJ-160 9 Page 2011 www.publiccounsel.org
Appendix C: WR-006 10 Page 2011 www.publiccounsel.org
Appendix D: WR-007 11 Page 2011 www.publiccounsel.org
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