Can you stop wage garnishment with debt consolidation?

Wage garnishment is a legal process in which your employer is required to withhold a portion of your paycheck to repay your creditors. Your wages might be garnished due to unpaid child support, IRS back taxes, or delinquent credit card balances, medical bills, or federal student loan debt.

If your wages are being garnished, or you’re worried they’ll be garnished soon, you do have rights. You may be able to avoid wage garnishment through a variety of strategies, including debt consolidation.

• What’s wage garnishment and how does it work?
• Can debt consolidation stop wage garnishment?
• How to qualify for a debt consolidation loan if your wages are being garnished
• Other things you can do if your wages are being garnished

What’s wage garnishment and how does it work?

When you fall behind repaying a debt, the creditor can ask the courts to order a wage garnishment. The court may issue a wage attachment requiring your employer to withhold a portion of your net income (the money you receive after all deductions). Your employer will send the garnished amount to your creditor or lender so they can put it toward your debt.

Most creditors can’t garnish your wages unless they’ve sued you in court and received a judgment (if you’re behind on credit card payments, for example). But if you owe tax debt, money on federal student loans, alimony, or child support, those creditors don’t have to file a lawsuit in order to garnish your wages. They have a legal right to take the money directly from your paycheck.

The amount of your wage garnishment will be based on the type of debt you carry. For example, if you have consumer debt like credit card debt, medical debt, or personal loan debt, your employer may garnish up to 25% of your disposable earnings or the amount by which your disposable income exceeds 30 times the federal minimum wage, whichever is less.

For student loans, the maximum amount that can be garnished under federal law is up to 15% of your disposable (net) pay. If you owe child support or alimony, your employer can garnish 50% of your disposable wages if you’ve been delinquent for less than 12 weeks and 55% if it’s been more than 12 weeks. These figures increase to 60% and 65% if you’re not supporting another spouse or child.

Limitations on wage garnishment

The federal government places limitations on wage garnishment. Some types of income — such as Social Security benefits, disability benefits, pensions, and retirement funds like 401(k)s and IRAs — are exempt from garnishment.

Child support and alimony income are excluded. But keep in mind that these sources of income may still be seized once they hit your bank account.

How long does wage garnishment last?

Wage garnishment may continue until you pay off your debt, settle it, discharge it in Chapter 7 bankruptcy, or repay some or all of it via a Chapter 13 bankruptcy repayment plan. It’s important to note that a bankruptcy filing can stop wage garnishment for consumer debts, but not for court-ordered debt such as child support and alimony.

Can debt consolidation stop wage garnishment?

Debt consolidation is when you roll multiple debts, like credit card bills, medical bills, and personal loans, into a new personal loan with a single payment. This can simplify the debt repayment process and give you the chance to lock in a lower interest rate and lower monthly payment.

You might be able to stop wage garnishment if you consolidate your debt. Once you get approved for a debt consolidation loan, you can pay back your creditors before you receive a wage garnishment order. This strategy can give you more time to deal with your financial challenges and protect your credit score.

It’s important to make the payments on your debt consolidation loan on time and in full. If you believe you’ll have trouble making payments, let your lender know. It may be able to adjust your payment plan or offer deferment or forbearance as a temporary option.

How to qualify for a debt consolidation loan if your wages are being garnished

If your wages are already being garnished, it may be difficult to get a debt consolidation loan. This is because most lenders require that your credit is in good standing. If your credit is in a shaky spot, lenders may be hesitant to approve you for a loan or offer favorable terms.

But it may still be possible to take out a debt consolidation loan. You might have a better chance of applying for a secured personal loan. In order to get the loan, you’ll put up collateral, such as your car. But if you default on the loan, you risk losing your collateral.

Does wage garnishment hurt your credit score?

Unfortunately, your credit will take a hit if your wages are garnished. A garnishment judgment will remain on your credit reports for up to seven years.

The good news is you can improve your credit score before and after wage garnishment. Start by creating a budget and sticking to it. Pay all your bills on time and try to avoid taking on more debt. You might consider taking on a side hustle to bring in some extra income as you’re working to pay off your debts.

Other things you can do if your wages are being garnished

If you’re facing wage garnishment but don’t want to take out a debt consolidation loan or can’t qualify for one, consider these alternatives:

• Set up a payment plan. Reach out to your creditors and explain what’s happening. They might work with you to arrange a payment plan that’s better for your financial circumstances.
• File a claim of exemption. Depending on your personal and financial situation, you may be able to file a claim of exemption with your local court to stop or lower your wage garnishment. For example, some states have a household exemption for those who have a dependent, like a child or senior parent that they support financially.
• Consider bankruptcy. Filing for bankruptcy should always be a last resort, because it will affect your credit and ability to get approved for loans for years to come. If you’re feeling overwhelmed by your debt and your credit has already taken a hit because of your unpaid debts, you can speak to a bankruptcy attorney for more information. They might offer a free consultation.