Agreeing to borrow a payday loan means you have signed to pay it off within two to four weeks at the most. However, when your paycheck or the loan’s due date arrives, you may realize you can’t settle your debts.
Perhaps you had a financial emergency that needed instant attendance, or your salary didn’t suffice. Whatever the reason for not paying back, you didn’t ask for an extension or rollover either. Deciding to forgo the outstanding loan is the worst-case scenario with detrimental effects on your accounts.
Besides draining all your remaining funds and incurring extra fees, the failure to repay can result in wage garnishment. Here’s an overview of the procedure and what you should be aware of during lawsuits. Learn how to ease the outcome of any court process or even avoid wage garnishment entirely.
What Is Wage Garnishment?
Wage garnishment is legal proceedings intended to help lenders regain what they previously lost in payday loans. In short, payday lenders can take clients to court for not paying back and win the case. Next, the court will order the employer of the deflating party to withhold a specific part of the employee’s salary. This money goes to the creditor’s bank account or whomever you owe.
Before the garnishment begins, the court will notify you and your bank or employer. Depending on the state law and the creditor, you may see your funds withheld between five and 30 business days. You can expect the garnishment to proceed until the entire debt, including court fees and interest, gets repaid.
The most common wage garnishment sources include credit card debt, consumer loans, medical debt, and tax debt. Employers can’t fire employees for a single debt subject to wage garnishment. Still, the law won’t protect you from getting the sack if you have a second defaulting account.
Exceptions to court orders exist and involve child support, student loans, and tax debts. In these cases, the IRS and the Department of Education can garnish your wages without court proceedings.
When Can Lenders Garnish My Wages?
If you undertook to repay a payday loan, you must pay it off on time and in full. Failing to pay your debt back can give your payday lender the right to take action. Some creditors will choose to sell your account to a debt collector. In this case, credit bureaus get informed, and your credit score starts to drop.
Others will go for legal proceedings and try to garnish your wages with a court order. Even debt collectors that bought your obligations from another lender can sue you. If you don’t dispute the claim and the judge rules against you, you can’t reverse the situation.
Do Lenders Have to Sue Me First?
Not repaying your credit cards or payday loans can spur your creditor to garnish your wages; however, the lender must sue you first before taking any action against your assets. They must open a case in a civil court and present the facts leading to the default.
Suppose you lost the lawsuit or didn’t dispute it at all, the judge will issue a wage garnishment order against you. The winning side can collect part of your income by delivering the specific court order to the local sheriff service.
Once your employer gets the court order, the whole process will start unraveling. First, you will get notified and then have part of your paycheck garnished. You will also receive information on how to challenge the earnings withholding through an attorney.
How Much Can Payday Lenders Take?
Thanks to the limitations imposed by law, payday lenders must follow specific rules on withholding your wages. Federal limits don’t allow wage garnishment that will leave the debtor on the verge of poverty. Thus, whatever portion gets garnished, the defaulting side must be able to survive the month.
Legal garnishment takes part of your disposable income. In other words, anything left after tax and Social Security deductions. The weekly disposable income payday lenders can collect in case of consumer debts, credit cards, and medical bills is either:
- the amount by which your income exceeds 30 times the federal minimum wage, or
- 25%, whichever is less.
Federal limits change for other debt types. Up to 60% can get garnished for child alimony and 15% for taxes and federal student loans. For better understanding, let’s illustrate the process:
Lucy’s weekly disposable income is $400. If we take 25% of her weekly earnings, we get $100. For the other scenario, we must consider the current federal minimum wage of $7.25 an hour. If we multiply $7.25 by 30, we get $217.50. So if we $400 deduct by $217.50, we end up with $182.50 only.
Once we weigh both options, we can conclude that the first amount is lower. Meaning, the payday lender can only collect $100 from Lucy each week. Any wage garnishment over $100, such as the second option of $217.50, is illegal. However, if your disposable income per week is $217.50 or lower, no creditor can garnish your wages for payday loans.
How To Avoid Wage Garnishment
Since wage garnishment is a challenging financial burden not many can take, you must be ready from the onset. In some cases, you may even manage to avoid losing the court proceedings. Check out your legal options:
Negotiate With Creditors
When your lender seeks loan repayment, don’t ignore their calls. Your best shot is to negotiate and find a middle ground for the outstanding balance. For example, you may offer a reduced amount of what you owe, and the lender might accept it., or you can agree to extend or roll the payday loan over for an extra fee.
Come To Court
The least you can do is show up to court when summoned. Failing to appear will ease the situation for creditors, and they can win the case hassle-free. Attending the court hearing will, in turn, force the payday lender to prepare the case. Depending on the money owed and your attorney, some may give up to go until the end.
You Have Rights
Make sure you know your rights when you are involved in court proceedings and served a judgment. Lenders can in no way harass you with emails and phone calls or threaten you with jail time. Get familiar with the FDCPA before you hire lawyers and never accept illegal and unfair treatment.
How To Stop a Payday Lender From Garnishing Your Wages?
Once the garnishment order comes into force, you may have as little as five days to act. If you reckon the proceedings are erroneous, executed wrongly, or might do you harm, consider objecting in court.
Next, you can file a claim of exemption with the court. Deepening on your case and the state laws, you may protect part or all of your earnings. You might get an exemption if you need your wages to support yourself or your family. Search for free lawyers in the area to help you deal with the creditor.
Filing for bankruptcy is the last resort solution for repayment. First, you can opt for Chapter 7 bankruptcy and have your debts cleared after ten years. Second, you may file for Chapter 13 bankruptcy, restructure your debt and pay it off over time.
When you receive a wage garnishment order, it’s vital to take it seriously. Not taking any action and ignoring the lawsuit will only lead to an automatic judgment against you. What happens next are empty bank accounts, lowered credit score, and severe stains on your credit file for up to seven years.
Being proactive, even when you know the debt is yours, may alleviate the situation. In some cases, you may work out a payment plan with your lender, and in others, you may qualify for an exemption.