Of course, not all solutions to debt minus bankruptcy are completely voluntary; for that matter, not even bankruptcy is uniformly a voluntarily vehicle of the federal courts. Though not every debtor has an employer or other consistent source of income, for those that do, their earnings may well come into play in helping to balance out what money they owe to their lender(s). Court-imposed orders to subtract a specified amount or percentage from an individual’s paychecks is best known as wage garnishment.
Often, wage garnishments, as they relate to the subject of bankruptcy, are mentioned with respect to being nullified by a formal declaration of bankruptcy. Just the same, for those who wish to avoid the stigma and severe credit consequences of bankruptcy, wage garnishment may be sufficient to meet a creditor’s needs. Some notes about the use of wage garnishments and the laws surrounding it: As an instrument of the courts, and by extension, creditors, wage garnishment may be authorized for a variety of collection purposes.
For instance, American citizens who have not met their tax obligations, have received notice of their delinquency, and have still refused to pay the outstanding tally may find their disposable income (i.e. take-home pay after taxes and charitable deductions) subtracted from at the behest of the Internal Revenue Service. As far as the scope of wage garnishments goes, employers can be served notice of these monies to be deducted for any source of debt, whether it is an unpaid student loan, child support/alimony or any other lingering financial obligation.
Moreover, the employer does not reserve the right to refuse a wage garnishment order handed down by the courts. Wage garnishments of a debtor’s pay may continue until the remainder of the debt is accounted for. However, while there may not be limits to the overall length of a debtor’s “sentence,” there are restrictions as to how much money per paycheck can be subtracted from an employee’s wages.
According to Title III of the Consumer Credit Protection Act, under most circumstances, wage garnishment may not exceed 25 percent of a debtor’s disposable income or 30 times the national hourly minimum wage. Imaginably, there are exceptions. Wage garnishments may be over 50% or more of a paycheck in child support arrangements, and there are no set restrictions on this course of action in bankruptcy court proceedings involving state and federal taxes.
As was noted earlier, wage garnishment may not be a voluntary debt management solution; in fact, it likely will not be voluntary. Just the same, employees may consensually make agreements with their employers to take a portion out of their paychecks each week to offset the demands of creditors. Within such an agreement lies yet another exception to the “25 percent rule.”