They Got Their Judgment, Now What Can They Take?
Once someone has a judgment against you, garnishing wages is a common way to try to collect it. There are two limits on how much they can take. One is a per pay period limit. The other is an annual cap.
PAY PERIOD LIMIT Once someone has a judgment against you, garnishing wages is a common way to try to collect it. There are two limits on how much they can take. One is a per pay period limit. The other is an annual cap.
How much income is exempt each time you get paid depends on a couple of factors. The first factor is the type of debt you have. If you have a consumer debt, then the weekly amount that is exempt is 40 times the Federal minimum wage. If you have a non-consumer debt, then the exempt amount is 30 multiplied by the Federal minimum wage.
How do I know if it is a consumer or a non-consumer debt?
A consumer debt must pass three tests.
- It was for personal or family use, not business.
- You had to pay interest or a finance charge and paid in installments.
- The amount involved is less than $53,500.
Credit card debts, car loans and installment payments for furniture are common examples of consumer debts. Non-consumer debts are those that don't meet the three tests. This article does not apply to child support and alimony, which are not covered by any of these rules.
The chart below shows how much is "off limits" from collection. The amount depends on how often you get paid. If the Federal minimum wage changes, these figures will also change.
How much money you have after taxes and required withholdings is your "disposable income." If that amount is more than the exempt figure in the chart, a creditor can garnish your wages. The amount they can garnish is the amount by which the disposable income is more than either the exemption or 25% of the disposable income, whichever is less.
|Exempt Amount if Non-Consumer Debt (30 x $7.25)||
Exempt Amount if Consumer Debt
(40 x $7.25)
Here are a couple of examples:
Let's say your weekly income after taxes is $300. The garnishment is for a consumer debt. $290 would be exempt, which leaves $10. 25% of $300 is $75. The most that could be garnished would be $10. If it was for a non-consumer debt, $217.50 could be protected, leaving $82.50. We know that 25% of $300 is $75. The creditor can take the lesser of the two amounts. In this case for a non-consumer debt, the creditor can only take $75.
Suppose your disposable income was $250 per week. For a consumer debt, $290 is protected. All of the wages would be exempt. For a non-consumer debt, $217.50 is protected. This leaves $32.50. $32.50 is less than $62.50 (25% of $250) so the creditor can only take $32.50.
There is also a cap on how much a creditor can take during a calendar year. The amount of the cap depends on your income. The chart below shows these limits.
|Annual Income||Annual Wage Garnishment Limit|
|$0 to $11,999||$ 250|
|$12,000 to $15,999||$ 400|
|$16,000 to 23,999||$ 800|
|$24,000 to $34,999||$1,500|
|$35,000 to $49,999||$2,000|
|More than $50,000||10% of expected earnings|
Are my wages safe in the bank?
Many people worry about depositing their paychecks in their bank account when they know a judgment has been entered against them. There are good reasons for this. The law also lets the creditor take money in bank accounts, but some funds are exempt.
- $1000 of cash or money in bank accounts can be claimed as an exemption.
- If the only money going into the account comes from wages and the wages have already been garnished, the remainder is all exempt. However, the bank may not know where your money comes from or that it has already been garnished.
- Income from certain sources is exempt. This includes money from public benefits, social security, veteran's benefits, child support and alimony.
If you can show that the source of the money in the account is all from an exempt source, then it should all be exempt. Many times you can prevent a problem just by telling the bank about your situation before the creditor tries to collect from the account. Depositing any nonexempt money can make the whole account available for collection. In these cases, it is very important to be careful that all of the money in the account comes from an exempt source.
Helping low-income Iowans with income maintenance and consumer law problems is a priority of Iowa Legal Aid. If you need legal help with a garnishment or debt collection situation, please feel free to contact one of Legal Aid's offices.