Some debt collectors, including credit card companies, will try to bully you into making a payment by threatening to garnish your wages. If this is happening to you, then it’s important for you to understand the laws around wage garnishment, how having your wages garnished can impact your credit report, and what you can do to help protect your income from creditors.
The Legality of Wage Garnishment
Can credit card companies actually follow through on their threat? Yes, but not until they sue you, win, and have a judge decide to guarantee your wages as the payment method.
It is illegal for debt collectors to threaten you with a lawsuit if they do not intend to do so or if they cannot legally do so. Even if your credit card company is unlikely to sue you for wage garnishment, they can still hurt you in other ways, including damaging your credit report and hiring a debt collection agency.
Note
Wage garnishment is when a creditor takes a portion of your paycheck to pay back a debt that you owe. There are laws that regulate how this happens and how your creditors can communicate with you. A new Debt Collection Rule from the Consumer Financial Protection Bureau went into effect on November 30, 2021, and clarified what information creditors are required to provide when they contact you.
Don’t Ignore a Lawsuit
If your credit card company serves you with legal documents about a lawsuit, it’s in your best interest to contact an attorney. Don’t ignore the lawsuit as doing so will only hurt you. If you do not show up to court as the defendant, then the plaintiff (the credit card company that filed the lawsuit) can have a default judgment entered in their favor. This means you automatically owe whatever amount the creditor sued you for and the court decides how to get the money from you, possibly through wage garnishment.
If you receive a notice from your employer about your wages being garnished but were never served with lawsuit papers, then you need to contact a lawyer immediately. Chances are good that the creditor, in this case, the credit card company, didn’t follow the correct process and you may be able to get the judgment overturned.
Creditors, including credit card companies, dog Sue you, whether you owe them $500 or $50,000. The best way to avoid a lawsuit and garnished wages altogether is by paying off debts before they become seriously delinquent.
Wage Garnishment and Your Credit Report
When a creditor sues you and wins, the judgment is entered on your credit report and remains there for seven years from the date of filing. As time passes, this judgment will impact your numerical credit score less and less but will be visible to future creditors for years. Your ability to open other credit cards, obtain a mortgage, or buy or lease a car will be seriously affected as a result of the judgment.
Protecting Your Wages From Creditors
While creditors, including credit card companies, do not often file wage garnishment lawsuits, if you have a steady job and seriously delinquent debts, wage garnishment is a very real possibility. Now, it’s possible your maximum wage garnishment amount might be either so low or your income might be so high that having your wages garnished won’t impact your lifestyle. But even if your state is one of the states that prohibit wage garnishment, it doesn’t mean you are in the clear. Rather than garnish your wages, the court could rule that the creditor may levy your bank account, which will absolutely impact your lifestyle.
Rather than risk wage garnishment or a bank levy, you should reach out to your credit card companies and try to work with them to settle your debt. If your account is seriously delinquent, it may be too late to fix your credit report; However, you may be able to salvage the situation depending on how much you owe. Often credit cards will settle for a fraction of the debt, usually in a bulk payment, although you may be able to negotiate a payment plan.